If you are planning to file a Chapter 7 case and you have secured debts, you should be prepared to disclose to the court how you intend to handle your secured loans. In other words, you must decide whether you will surrender the asset you pledged as collateral (house, vehicle, boat, etc.) to the lender, or if you will keep the asset and continue to pay for it. If you want to keep the asset and pay for it, your lender may request that you execute a pleading called a “reaffirmation agreement.”
A reaffirmation agreement is a new contract signed by the debtor and the lender. It often sets forth new contract terms and the debtor agrees to pay all (or an agreed-upon amount) of the debt, even though the debt could have been discharged in the bankruptcy filing. This means that if you sign a reaffirmation agreement, you are giving up your right to discharge the debt that otherwise qualifies to be discharged in your case. Thus, if you sign the reaffirmation and later default on your payments, your secured lender has the legal right to repossess the collateral.
The applicable statute for reaffirmation agreements is found at 11 U.S.C. §524(c). A standard reaffirmation contract sets forth that the debtor can keep possession of the collateral as long as he or she makes timely payments as set forth in the new agreement.
The lawyer for your lender typically drafts the reaffirmation agreement. The terms may remain the same as the original loan or they may be changed. You should be aware that reaffirmation agreements can have blanks that the debtor is required to fill-in, such as the financial information needed by the court to understand whether or not the debtor can afford to reaffirm the debt. Also, the debtor and your attorney are required to sign the reaffirmation.
Deciding whether or not to sign a reaffirmation agreement is very important. You should confer with a knowledgeable bankruptcy attorney to discuss your unique circumstances. Waiving your right to discharge a debt is a big decision that should only be made after conferring with your legal counsel.
If you have questions about filing for bankruptcy protection, we have the answers. Call us today to schedule your initial consultation. Our office is located in Melbourne, but we proudly serve individuals and businesses across the State of Florida.