Douglass, West & Associates

Reaffirmation Of Debt

Reaffirmation of a debt is rarely a good idea but may be a necessary evil under the new bankruptcy code. A Reaffirmation Agreement such as this is a promise to pay, despite the Chapter 7 Discharge and effectively waives the benefits of dis­charge as to the debt.

With regard to secured creditors and the collateral (typically a car), be advised that under the bankruptcy code you have three options: (1) redeem – pay the creditor the lesser of the fair market value of the collateral or the balance due; (2) reaffirm the debt – despite the bankruptcy, re-agree to the existing contract per its’ original terms and conditions; or (3) surrender – give the collateral back to the creditor.

With regard to the redemption option, be advised that there are redemption funding companies which exist to help your efforts to pay-off the secured creditor (typically the amount paid is based on the “wholesale” value). In simple terms, the redemption funding company makes you a new loan which is then used to pay the creditor off and possibly pay your attorney’s fees (relating to either the negotiation of the terms of the redemption and/or fees relating to the filing and litigation of the motion to redeem with the Court). Please be aware that, although your monthly payments may be significantly less than those on your current loan payment, the interest rate on the new loan is usually extremely high. You can google redemption funding or contact 722 Redemption Funding, Inc. at www.722Redemption.com or (1-888-721-2800).

With regard to the reaffirmation option, be aware that if that option is chosen you a recommitting yourself to that contract per the original terms of the loan. At the close of your case you will not receive a discharge as to the debt and will remain responsible to the creditor. In the event the collateral is repossessed, stolen or otherwise destroyed you will remain responsible to the creditors of any amounts which may remain due after an insurance claim or sale. Be advised that there is the possibility of renegotiating the terms and conditions (interest and/or amount due – typically based on the “present” retail value of the vehicle of your loan) with the creditor and thereafter reaffirming based on the new terms.

With regard to the surrender option, be aware that if that option is chosen you return the collateral to the creditor, thereafter you will not be responsible for the debt and will receive a discharge of your responsibility on that loan.

Be advised that there may be a 4th Alternative. Under the old law debtor(s) could retain the vehicle and continue to make monthly payments and as long as those payments were made the secured creditor was not allowed to repossess the vehicle. In the event the loan was not paid or there was a loss due to an accident or theft, the creditor’s sole recourse would be to recover the vehicle with amounts due on the loan being discharged. Attorneys for car loan companies have advised that in the event a debtor(s) does not reaffirm, redeem or surrender, they have been authorized to move forward to repossess the vehicle. To do so before the 1st scheduled 341 hearing, the car loan company would have to file a Motion for Relief from the Stay to be granted permission to take the vehicle. However, 45 days after the 1st scheduled 341 hearing, the car loan company could repossess the vehicle although you have remained current on payments on the loan. I suggest that you could do the following; continue to pay the monthly car loan payments on a timely basis and see if the loan company continues to accept the payments. If you pay-off the note and complete payments you will receive title to the vehicle. As long as you have not reaffirmed the debt, in the event that you stop paying or if there is a loss, after they repossess the vehicle, you will not be obligated under the loan as you will have received a discharge in bankruptcy. You will then be free to obtain a new car loan.

Useful Links to Articles Concerning Car Loan Reaffirmation:

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