If you are in the process of bankruptcy, there may be a situation where you will need to file a reaffirmation agreement. This is typically used in Chapter 7 but can also sometimes be used in Chapter 13. Our New Jersey reaffirmation agreement lawyers know what you need to do and can further explain what it entails.
The process includes filing a form with your bankruptcy petition, reviewing and signing a reaffirmation agreement, and then the creditor has to file the reaffirmation agreement with the court for approval.
A reaffirmation agreement is between the debtor and a secured creditor to “reaffirm” the obligations on the debt which existed prior to the bankruptcy filing. A debtor has the option in a Chapter 7 bankruptcy to reaffirm secured obligations on loans (typically auto loans) that they want to keep. A reaffirmation is subject to approval by the court.
The reaffirmation of a debt does not play a large role in the case. It is important to the person who files for bankruptcy to be able to maintain certain obligations and allow them to move forward in their life.
Technically any debt that is secured against some property can be reaffirmed in New Jersey. Property can be either real property or personal property. However, there are big differences in the bankruptcy code about the requirements to reaffirm a secured debt on personal property and a secured debt on real property like a mortgage or home equity line of credit (HELOC).
On personal property like a car, the bankruptcy code says that if you want to keep the vehicle with a car loan, you have to propose to reaffirm it or redeem it. “Redeem” means buying a vehicle from a creditor, which is not something we very often see. So by reaffirming it, you can keep your car loan.
If a reaffirmation agreement is approved by the court, it will also continue to report on your credit report, so if you continue making timely payments, it is a good way to re-establish credit history after a bankruptcy case.
Risks include reaffirming a debt which could be collected against in the future. If you reaffirm a car loan and then one year later you cannot make payments, the creditor can now pursue you for collection of both the car and the money due.
Reaffirmation is subject to court approval and a debtor needs to file the appropriate form and send back a signed reaffirmation agreement. Even if the court “denies” the reaffirmation, they do not have to surrender their car. The “debt” is discharged in bankruptcy but you can keep the car as long as you make all of your future payments.
Reaffirmation agreements can be revoked in New Jersey and there is a period of time after you enter a reaffirmation where you have the right to change your mind. Certain forms might need to be filed with the court if a change is made.
On the agreement, there is a box to indicate if there is a “presumption of undue hardship”. The bankruptcy code effectively defines this as situations in which your income is less than your monthly expenses.
The debtor is required to return a signed agreement to the creditor. By just timely returning the signed agreement, the creditor cannot pursue repossession or collection against the debtor for reasons other than defaulted payments. (11 USC § 521(a)(6) and §362(h)(2)(B).)
The creditor is required to file the reaffirmation agreement with the court. If it is subject to the presumption of undue hardship, the court can, and almost always does, deny the reaffirmation of the debt. There is a hearing scheduled in these matters and the court can review with the creditor and debtor the reasons why reaffirmation should or should not be approved. If a reaffirmation agreement on an auto loan is denied, then:
If you don’t make payments after your reaffirmation agreement, the car can be repossessed (after the case is completed) and, if the agreement was approved by the court, the creditor can pursue collection on any remaining balance.
One option is redemption. Effectively, the bankruptcy code gives you the right to “buy” the car from the creditor for its current value. This option is rarely available as there is no right to receive financing and there may be costs and expenses with redemption. But you have this right.
There is also surrender, where if you do not want to keep the vehicle, you can essentially give it up, which also protects you from future collection of debt.
Technically, for “personal property” secured loans, there really is no other option. However, if you have a mortgage which is obviously secured by real property – real estate is NOT personal property – then there is no requirement to choose one of the three options (reaffirmation, redemption, surrender) and you can keep your home without reaffirming the mortgage.
If you believe this type of agreement will apply to you, call Gillman Capone and learn if a New Jersey reaffirmation agreement lawyer can help you.
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