When filing for Chapter 7 bankruptcy, an individual must submit to the court a schedule indicating all of their secured debts (mortgages, vehicle loans, and purchase money loans for furniture, jewelry, or household goods, as well as any other debt for which you have pledged property as collateral to the creditor). In addition to filing a list of all secured debts, Chapter 7 debtors also file a form called the Statement of Intention. The Statement of Intention allows both the bankruptcy court and creditors to know whether the debtor intends to keep or surrender the collateral for each secured debt. For all collateral the debtor wishes to keep, such as his or her home or car, the debtor will also indicate on the statement of intentions whether he or she plans to redeem the collateral or reaffirm the debt.
Redemption allows a Chapter 7 debtor to pay the fair market value of the collateral — usually in one lump sum — in full satisfaction of the debt. This option can be especially beneficial when the debtor is upside down on a vehicle loan. However, sometimes redemption is not a practical choice, because many debtors do not have the funds to do so. The most common option for keeping secured property like cars and houses is to reaffirm the car loan or the mortgage loan.
Reaffirming a debt means the debtor agrees to remain liable on the debt after bankruptcy and will continue making payments to the creditor, allowing the debtor to keep the collateral. If a debtor chooses to reaffirm the debt, he or she must sign a reaffirmation agreement, which is a contract that allows the debtor to keep the property in exchange for taking the loan out of the bankruptcy and agreeing to pay the loan.
Once the reaffirmation agreement is signed, the debtor will have 60 days from the date of the signing or up until the day the court discharges the case, whichever is later, to change his or her mind and withdraw the agreement. However, once the court enters the Chapter 7 discharge, the agreement is binding. If the debtor defaults on a reaffirmed debt after the court entered the discharge, the creditor can repossess the collateral and sue the debtor for any deficiency balance, fees and costs. For this reason, it is important to carefully weigh your options and review reaffirmation agreements with an experienced attorney to protect your rights and property.
Reaffirmation agreements are voluntary, but debtors should consider the consequences carefully before entering such agreements, as they are binding contracts. If you are thinking about filing bankruptcy, contact a qualified bankruptcy lawyer today. A bankruptcy lawyer will explain all available bankruptcy options to you, and should you choose to move forward with a Chapter 7 bankruptcy, will help you decide whether to reaffirm secured debts and ensure all reaffirmation agreements contain terms that are in your best interests.
Reaffirmation agreement can be complex. It only applies if you file a Chapter 7 bankruptcy, not a Chapter 13 bankruptcy. Bottom line, a qualified Chapter 7 bankruptcy lawyer can help you protect your property without giving up important bankruptcy protection.
Reaffirmation agreement can be complex. It only applies if you file a Chapter 7 bankruptcy, not a Chapter 13 bankruptcy. Bottom line, a qualified Chapter 7 bankruptcy lawyer can help you protect your property without giving up important bankruptcy protection. To get all the information you need to make a sound decision, call the Lozano Law Offices at (510) 538-7188 for free initial consultation or contact us online. Attorney Crispin Lozano has helped thousands of individuals throughout Northern and Eastern California achieve debt solutions that works best for them.