You have filed a Chapter 7 bankruptcy and want to keep property which secures a loan. What happens now? When you buy real property (usually your home or land) or personal property (vehicles, furniture, etc.), you sign papers which state that you promise to pay for the property and that the lender can foreclose or repossess if you don’t make the payments. This is called a secured loan. Bankruptcy law requires that if you want to keep property securing such a loan, then you have to continue to pay it. If you don’t want to pay the loan, then you have to give the property back.
When you file your initial paperwork with the Bankruptcy Court, you file a document called a Statement of Intention. This statement tells creditors whether or not you want to keep property or give it back. If you are keeping property, the creditor will send to you an agreement called a Reaffirmation Agreement. The Agreement contains all of the terms and conditions of your original loan, including the amount due, interest rate, and budget information. By signing the Reaffirmation Agreement, you agree to continue making the payments on the loan so that you can keep your property. When the creditor files the Reaffirmation Agreement with the Bankruptcy Court, you are obligated to pay the loan in full. If you default or stop paying on the loan, the creditor may take all legal actions to collect its debt. Once the Reaffirmation Agreement is signed and filed with the court, the debt is no longer affected by the bankruptcy.
The deadline to file a Reaffirmation Agreement with the Bankruptcy Court is 60 days after the first date of the meeting of creditors. If you do not sign the Reaffirmation Agreement by this date, then the creditor may move forward with repossession or foreclosure since you have not agreed to pay the debt. The deadline can be extended with permission of the court, but it is best to have the Reaffirmation Agreement filed by the deadline.
When you decide to sign a Reaffirmation Agreement, you are telling the creditor and the Bankruptcy Court that you can afford to make the payment because you have enough income to do so. However, if your expenses are higher than your income, it is difficult to justify to a creditor that you can make the payment. Your bankruptcy lawyer should explain to you that the law has provided a way to still be able to keep your property even though your income does not appear to be enough to afford the payment.
A “presumption of hardship” is created when it looks like you cannot afford to make the payment. The Reaffirmation Agreement is still filed with the court; however, you must appear before the judge and explain how you plan to pay the debt even if you do not have enough money to pay it each month. If the judge agrees with your plan, an order will be issued approving the Reaffirmation Agreement and allowing you to keep the property by paying the debt. If the judge does not agree with your plan, an order will be issued denying approval of the Reaffirmation Agreement and you will have to turn over the property to the creditor. Reaffirmation Agreements are a great tool to assure a creditor that you can pay the secured loan and that you will know the terms of the loan and be able to keep your property.
Sometimes creditors will let you ‘retain and pay’ where you do not sign a reaffirmation agreement but continue to make the payment and keep the vehicle. It is entirely up to the creditor but some would rather have you monthly payment than the vehicle or other property. Give our local bankruptcy attorney a call today if you have any questions about reaffirmation agreements and how your property will be treated in the bankruptcy.