Reaffirmation Agreements

By Mark  Jun. 25, 2012 11:18a

Reaffirmation Agreements

SUMMARY:

1. If you cannot make the payments, they will take your car away from you.
2. If you DO sign a reaffirmation agreement in your bankruptcy case then you default on your payments and they take it away from, they will SUE afterwards. You will owe them the difference between what they sold the car for and the amount you owed. This is called a deficiency.
3. If you do NOT sign a reaffirmation agreement, then you default on your payments, they will take it away and they can NOT sue you afterwards.
4. If you do NOT sign a reaffirmation agreement, then even if your payments are current, they can repossess it anyway.
5. But currently only Ford, Jaguar, SDCCU and California Coast Credit Union have stated that they will take it away if you don't sign a reaffirmation agreement even if you are current with your payments.
6. But there is no reason to believe that the other banks and credit unions can not or will not change there minds some day.

A Reaffirmation Agreement is a new promissory note to keep paying on an old contract for the purchase of goods where the lender can repossess or foreclose the goods. Because you have signed a security agreement the lender has the right to repossess or foreclose if you do not pay for it.

Chapter 7 bankruptcy discharges your personal obligation to pay the loan, or in other words, you no longer have to legally pay on the note. However, the lender still has a lien on the object(s) in question. Jewelry, refrigerators or large appliances, and most notably cars can be repossessed in this way.

What a reaffirmation agreement does: It allows you and the lender to agree that you may keep the goods so long as you continue to pay for them. When executing a reaffirmation agreement with the lender sometimes the lender will reduce the balance owing, the interest rate or both. As a result the payment and term can be reduced.

Nowadays most lenders will not reduce the interest rates and balances on cars. Home mortgages never do. You can often reduce the balance and interest rates on appliances, jewelry, computers and motorcycles. However, on goods such as appliances, jewelry & computers, you only need to agree to pay back the fair market value (FMV) of these items. You and the lender, however, must agree on the FMV. They also cannot collect or include in the reaffirmation agreements things such as tax, delivery charges, etc. Plus, all the payments you have already made must be credited towards the balance owed. Do not sign a reaffirmation agreement that asks for the full original contract price to be paid back.

If you do sign a reaffirmation agreement, you will have 60 days to change your mind and rescind it. Rescissions must be in writing, served on the creditor and preferably filed with the court.

The Court must approve the reaffirmation agreement. If the Court does not approve the reaffirmation agreement then the creditor cannot repossess that property as long as you are current with your payments.

CARS AND VEHICLES

Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current. However, at this writing, the only companies who do are Ford Motor Credit & Jaguar Credit & California Coast Credit Union. I cannot promise that other companies will not change their policies and begin behaving like Ford. Most Importantly, without the reaffirmation agreement, the lender CANNOT collect a deficiency against you if they do take the car.

WITH a reaffirmation agreement, as long as the payments are current, then they cannot take the car just as before the bankruptcy. However, just as before the bankruptcy, if you get behind in payments they will take the car AND sue you for a deficiency balance.

If you get behind, WITH or WITHOUT a reaffirmation agreement, they will definitely repossess the car. The main question to me is whether or not you can afford to make the payments or is the car so far upside down that you would be better off getting a new/different car and not owe so much money?

So, if you just keep making the payments and don't worry about it, you have a great probability of nothing changing, and eventually once the vehicle is paid off, they will still have to give you the pink slip.

If you sign and file a reaffirmation agreement, and then change your mind, you have 60 days to do so in writing and it must be in writing, signed and filed with the court.

HOWEVER, if you do sign a reaffirmation agreement and turn it into the court, and if the bankruptcy judge denies the reaffirmation, or in other words does not approve it, then as long as you keep making the payments on the car, thenthe lender cannot repossess it.

MORTGAGES & REAFFIMATION AGREEMENTS

You would never reaffirm a mortgage. Never. Seldom but sometimes a mortgage lender will tell a client that the client's post bankruptcy mortgage account would show up as good credit on their credit report if the client had just done a reaffirmation agreement. It's all the bankruptcy attorney's fault that the client's credit is not better than it is right now because he didn't tell the poor client to reaffirm the mortgage. DON'T BELIEVE THEM!

Most mortgage companies will not do this to you, just a few. Ones that do are unscrupulous and are aiming to get you to sign your life away. They want you tied to that mortgage through the reaffirmation agreement come hell or high water. If they can just do that, then if you foreclose, maybe they can sue you.

Because we do not have a crystal ball, and because the length of the term of a mortgage is so long, we NEVER sign a reaffirmation agreement on a mortgage. This is the industry standard.

If you have any questions, please feel free to call me. I go over in detail, at no extra charge, with my client's regarding whether or not to sign a reaffirmation agreement.