Reaffirmation agreements in Edison bankruptcy cases are contracts made between a debtor and a creditor during a Chapter 7 bankruptcy (though can occasionally be used in a Chapter 13 bankruptcy). Through this agreement, the debtor agrees to continue paying a specific debt that would otherwise be discharged in the bankruptcy. In exchange, the creditor promises not to repossess or take back the property that serves as collateral for the loan.
Our experienced bankruptcy attorneys can advise you on whether such an agreement is in your best financial interest. Reaffirming a debt keeps it active and personally liable, which runs contrary to the fresh start purpose of bankruptcy. A lawyer can often negotiate more favorable terms for the debtor, such as a lower interest rate, which is not always guaranteed otherwise.
In bankruptcy cases, reaffirmation agreements are primarily used by Edison debtors who want to keep secured property, such as a car or a house, by agreeing to continue making payments. By signing the agreement, the debtor voluntarily waives the discharge of that specific debt, accepting personal liability for it, as if the bankruptcy never occurred. This process is most common in Chapter 7 bankruptcies. It allows the debtor to continue making payments on a secured asset and prevent repossession or foreclosure by the creditor.
The decision to reaffirm a debt is entirely voluntary and is not required by law. However, the agreement must be approved by the court. If the debtor later defaults on the loan, the creditor can repossess the collateral and sue for the remaining balance (the deficiency). The agreement must be signed and filed with the New Jersey Bankruptcy Court before the debtor receives a discharge. The deadline is typically 60 days after the first meeting of creditors.
In New Jersey, a debtor can cancel or “rescind” a reaffirmation agreement by providing written notice to the creditor. This can be done at any time before the bankruptcy discharge is entered or within 60 days after the agreement is filed with the court, whichever is later.
In a Chapter 7 bankruptcy, a creditor with a lien on your property, such as a mortgage or car loan, can repossess the asset if you do not reaffirm the debt. An approved reaffirmation agreement in Edison prevents the creditor from repossessing the property as long as you make payments as agreed. In some cases, a creditor may offer better loan terms, such as a lower interest rate, as part of the reaffirmation process.
Consistent, on-time payments on a reaffirmed debt are reported to credit bureaus. This can help you rebuild your credit score after a bankruptcy. New Jersey bankruptcy courts will only approve a reaffirmation agreement if it does not cause “undue hardship”. Your attorney must also certify that you can afford the payment and that the agreement is in your best interest.
The most significant drawback of reaffirming a mortgage is that you remain personally liable for the debt. This means if you default after the bankruptcy, the lender can foreclose on your home and sue you for any deficiency balance left on the loan.
In New Jersey, a “ride-through” is generally possible for mortgages, allowing you to keep your home in bankruptcy without a reaffirmation agreement, as long as you remain current on your payments. This approach releases you from personal liability for the mortgage debt, protecting you from a deficiency judgment if you default in the future.
An Edison attorney’s involvement in reaffirmation agreements in a bankruptcy is crucial to ensure the agreement is valid and to protect the debtor. The bankruptcy court is particularly concerned with protecting debtors from agreeing to payments they cannot afford. Your attorney must sign a certification that the agreement meets specific legal requirements, which gives it enforceability in the eyes of the bankruptcy court.
Our team can help you understand the legal effect and consequences of the agreement and any potential default, and act as your legal advocate to ensure you do not make any decisions or sign anything that compromises your financial future. Contact Gillman Capone today to request your free case review and learn what may be possible for your situation.
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