Bankruptcy reaffirmation benefits a debtor by allowing you to keep the property and improve your credit.  When you reaffirm, you continue to owe the bank after filing bankruptcy and they report your on-time payments. Reaffirmations are voluntary and drafted by the lender. Your attorney does not draft them. You normally have to call the creditor and ask the reaffirmation to be sent to your attorney. Reaffirmations must be signed within 15 days after the 341 or property may be repossessed. There are three things to remember.

First, the reaffirmation must be signed and filed prior to the case closing. It is invalid if it is signed after the case closes. Second, reaffirmations can be filed after the case closes but it costs another filing fee to reopen plus additional attorney fees. Third, If you have a negative budget with more expense than income the court will not approve a reaffirmation as an undue hardship.

The court has a reduced standard for looking over and approving home mortgage and credit union reaffirmations. Bankruptcy reaffirmations on auto loans, home mortgage, and boat loans are common. Most property is kept even if a reaffirmation is not signed as long as payments are made. But, the lender will not report the payments to a credit bureau.

Benefits and Costs of a Bankruptcy reaffirmation

Bankruptcy reaffirmation benefits the lender. Lenders normally report the payments made to the credit bureau if you reaffirm. You can’t force the bank to reaffirm a loan. Often mortgage companies will no send out a reaffirmation. Reaffirmations can be important if you wish to refinance a home mortgage later. The discharge will eliminate your personal responsibility for the debt and only a reaffirmation returns you to owing for the debt.

Almost every lender will accept payments in exchange for not repossessing or foreclosing. You can voluntarily repay after a bankruptcy. But banks won’t report on-time payments to credit bureaus unless you reaffirm. If you don’t reaffirm you won’t be sued for any deficiency. When you owe too much for your car consider filing a redemption or surrendering instead.

Only reaffirm if you can afford it. Paying a reaffirmed debt on time after you file bankruptcy will help re-establish credit. Often the bank offering a reaffirmation might add attorney fees to the loan if you file a reaffirmation.

Redemption Reaffirmation or Surrender

You have three options with your car or home after you file bankruptcy:

  • If your car is unreliable and you owe too much you can surrender your car or home in bankruptcy and owe nothing, which is a good way to get rid of a lemon auto. However, then you need another car or home. During a Chapter 7 Bankruptcy, Budget Auto and Toyota of Louisville will finance an auto and their rates are better than the “buy here – pay here” option. If your auto is not reliable or it is not worth more than the debt, now may be the time to exchange it!
  • If you bought a good car or a good house for a good price and a good interest rate you can keep it by reaffirming the debt and paying the lender as if you have never bankrupted that creditor.  Most lenders will also allow you to just make car and insurance payments on the auto to keep it.
  • Redemptions are when you pay the lender a lump sum for the replacement price of the auto. The lender is then ordered by the court to release the lien and you own the car free and clear. Then, there are lenders who will lend you the amount to refinance your car. However, 722 Redemption might save you money by allowing you to pay the actual value of the car and not what you owe. (1-888-721-2800) Also, if you have to surrender a car they may be able to put you into a different car.

The Time Limits for the Statement of Intention

In a Chapter 7 Bankruptcy, a debtor is required to sign a statement of intention and you are supposed to redeem, reaffirm, or surrender within 15 days of your 341 hearing. You can change your mind and rescind a reaffirmation but you have to rescind the reaffirmation within 60 days of filing it and before discharge send it by certified mail. However,  reaffirmations allow the bank to repossess the car and to sue for nonpayment.

See 11 U.S.C. §521(a)(2)(B), §524(c)(6)(B) 11 U.S.C. §524(m)(2).

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