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5/28/2021 5 Things You Should Know About A Reaffirmation Agreement in Chapter 7 Bankruptcy in AlabamaRead Now5 Things You Should Know About A Reaffirmation Agreement in Chapter 7 Bankruptcy in AlabamaA reaffirmation agreement is an agreement in which the debtor (the person who owes money and is filing the bankruptcy) agrees to continue repaying an existing debt despite having filed a Chapter 7 Bankruptcy. Reaffirmation of a debt normally involves a secured debt which is a debt that is secured by collateral, usually a house (mortgage), auto loan, or other loan secured by creditor.
With regards to secured debts in a Chapter 7 Bankruptcy most debtors have two (2) options -- one is to surrender the collateral and completely wipeout (discharge) the debt. The second option is to keep the collateral and continue paying on that debt normally under the same terms as in the original contract. Most secured creditors request and/or require that in order for the debtor to keep the collateral and continue paying that debt, that the debtor sign a reaffirmation agreement and reaffirm that prior contract. Here are five (5) things you should know before reaffirming a debt. 1. Reaffirming A Debt Can Help You Rebuild Your Credit Some bankruptcy filers may think "I have just filed for bankruptcy. Why would I want to reaffirm a debt I could get rid of." This could be true in some circumstances; however, in other situations, signing a reaffirmation agreement may be beneficial. When a debtor reaffirms their debt, they are agreeing to make the same monthly payments on the contract as before bankruptcy. This will help rebuild their credit score with the credit reporting agencies over time and show lenders that this person is responsible enough to handle additional loans or credit cards. If a person continues to make on-time payments after their Chapter 7 bankruptcy is completed (discharged), a person's credit score can increase quickly and substantially. Some people can have a credit score in the 700's with the credit reporting agencies shortly after a year in bankruptcy if they have worked on it. However, this should not be the sole reason to reaffirm the debt. You should only reaffirm the debt if you need the collateral and are sure you can afford the monthly payments. Click here for a Free Consultation, no obligation and no pressure. Your consultation can be in person if you are near Cullman County, Alabama or by telephone if you prefer or are located elsewhere in Alabama. Find out whether Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for your situation. 2. Reaffirmation Can Provide Certainty Against Repossession of a Vehicle and Foreclosure of a House Some creditors will allow debtors in a Chapter 7 bankruptcy to maintain possession of the collateral (normally a vehicle or real estate / house) by just continuing to make regular on time monthly payments. This is often called "Stay and Pay". It is normally easier to "Stay and Pay" with a mortgage (i.e. a loan secured by a house and real estate). This is due to the laws governing foreclosure. If you are current on the mortgage payments, it is difficult for the mortgage company to meet the requirements to foreclose on the house, even if you did not reaffirm the debt. However, some creditors require entering into a reaffirmation for the debt in order for debtor to keep the collateral. Most car loan companies do require reaffirmation agreements and will threaten to repossess the vehicle collateral if reaffirmation agreements are not signed. Click here for a Free Consultation, no obligation and no pressure. Your consultation can be in person if you are near Cullman County, Alabama or by telephone if you prefer or are located elsewhere in Alabama. Find out whether Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for your situation. 3. Reaffirmation Agreements Put You Back On the Hook An individual normally files a bankruptcy case to get debt relief. If you reaffirm a debt you will not get debt relief from that debt. Once you enter the agreement you are once again have personal liability for that debt. If you default on a debt after reaffirmation, you are subject to the same negative consequences as if you had not filed a bankruptcy case. Your collateral can be repossessed or foreclosed upon. You can be subject to a lawsuit and therefore liens and garnishments for any deficiency owed after the collateral is sold. Defaulting after reaffirmation can be doubly complicated because at that point you have already used up your Chapter 7 Bankruptcy protection and cannot file another Chapter 7 for 8 years. So, you will not be able to discharge the deficiency balance. You may, however, be able to make the debt manageable through the use of a Chapter 13 Bankruptcy. Click here for a Free Consultation, no obligation and no pressure. Your consultation can be in person if you are near Cullman County, Alabama or by telephone if you prefer or are located elsewhere in Alabama. Find out whether Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for your situation. 4. A Reaffirmation Agreement Can Be Rescinded If Done Prior to Discharge or Within 60 Days of the Reaffirmation. The bankruptcy laws state that a person may rescind a reaffirmation agreement at any time before the bankruptcy court enters a discharge order or before the expiration of the sixty-day period that begins on the date the reaffirmation agreement is filed with the court, whichever occurs later. To rescind a reaffirmation agreement, a person must file notice of rescission with the court and notify the creditor that the reaffirmation agreement is rescinded. As long as it is done within the time frame set out above, you can rescind your reaffirmation of the debt for any reason or no reason. You If you do change your mind and want to rescind the reaffirmation agreement, you will need to give the appropriate notice to the creditor and file the notice with the court. We, as your Cullman Bankruptcy Attorney, will do this for you. Click here for a Free Consultation, no obligation and no pressure. Your consultation can be in person if you are near Cullman County, Alabama or by telephone if you prefer or are located elsewhere in Alabama. Find out whether Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for your situation. 5. The Requirements Secured Creditors Have for Reaffirmation If you want to sign a reaffirmation agreement and keep the property you have as collateral, the creditor normally requires two (2) things: 1. You must be current on your payments when you file your bankruptcy case. Creditors will require you to be current on your payments or at least very close to current. It is a waste of the creditor's time to reaffirm a debt with you only to have to repossess or foreclose on it shortly thereafter. This also protects you as the debtor. If you want to keep the property you need to have the means to pay for it. If you are in substantial arrears it is probably a sign that you cannot afford to keep the property and, as set out above, you do not default after reaffirmation. There are severe consequences. 2. You must have proper insurance on the property. Creditors will require you to have the collateral properly insured before they allow you to sign a reaffirmation agreement. This is already part of your original contract with the car lender or mortgage company. Not having insurance is a form of default on the contract just like not making your monthly payment. Insurance also protects the creditor from losing its collateral to some type of catastrophic damage. For vehicles you must have full coverage insurance on the car or truck or other vehicle. For vehicles and houses you must have coverage in an amount high enough to cover the value of the property, and the lienholder and/or mortgage company must be named as a loss payee on the insurance policy. Click here for a Free Consultation, no obligation and no pressure. Your consultation can be in person if you are near Cullman County, Alabama or by telephone if you prefer or are located elsewhere in Alabama. Find out whether Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for your situation.
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Many people are surprised when they find out they can keep their car after filing for bankruptcy in Alabama. There is a myth about bankruptcy that you have to surrender or give up your vehicle(s) when you file. However, this is not the case!
There are two types of bankruptcy that are commonly filed by individual consumers (i.e. not businesses or farmers) -- one type of bankruptcy is a Chapter 7 or the other type is a Chapter 13. The good news is that in either a Chapter 7 or a Chapter 13 you can almost always keep your cars and/or trucks. It is normally not if you can keep your car, because you normally can, it is which methods and terms we can use under the bankruptcy laws to keep the vehicle. If you want more information about how this works, then read on below! What Happens to Your Car in Chapter 7 Bankruptcy? Most people can keep their cars in a Chapter 7. Why? Because most people either owe a significant amount on their vehicle, thereby eating up all or most of the equity or when they have had their vehicle long enough to pay it off, it has depreciated enough to fall under the exemption amount. Therefore, it is no longer an asset to the bankruptcy court valuable enough to make it worthwhile for the bankruptcy trustee to pursue. To keep your vehicle you need you need to meet the following criteria:
These are the first things we, as your bankruptcy attorney, will look for to be sure that you can keep your car in a Chapter 7. The good news is that all of these, other than number 2, maintaining car insurance, can be fixed through a Chapter 13 as described below. So, if you do not owe on your car and it does not have to much equity to exempt, you can file a Chapter 7 and keep your car. You will not have to do anything extra after filing bankruptcy. If you owe on your car, you can file a Chapter 7 as long as you are current on your payments, have insurance as required by your vehicle creditor, not have too much equity in the vehicle, and can show the Bankruptcy Court that you can afford your monthly payments per your budget. If you meet these requirements, you will be able to sign a reaffirmation agreement with your car creditor; and thereby, reaffirm your prior loan agreement for your car. You will continue to make your payments direct to your car lender under the same terms for interest rate, payment, amount owed, etc. For this loan, once you reaffirm it, it will be like you never filed bankruptcy with regards to it. So, based on the above, almost all people looking at filing a Chapter 7 bankruptcy in Alabama can file and keep their car or truck or other vehicle. What Happens to Your Car in Chapter 13 Bankruptcy? Like in a Chapter 7, you can also almost always file a Chapter 13 bankruptcy case and keep your car as well. In fact, unlike a Chapter 7, we, as your bankruptcy attorney, can use a Chapter 13 bankruptcy to actually save your vehicle from repossession if you are behind on your payments. There are a couple of instances where filing a Chapter 13 can help you keep your car where a Chapter 7 cannot. When you file a Chapter 13 you take the amount owed on the vehicle and put it in a Chapter 13 plan and pay it and any other debt you want or need to pay through a payment plan and through the Chapter 13 bankruptcy trustee. A Chapter 13 plan can be between 36 and 60 months long. In addition, a Chapter 13 bankruptcy allows you to drop the interest rate on your vehicle loan to prime plus 2% (which is 5.25% as of today). This normally lowers your monthly outgo regarding the vehicle by reducing the interest rate and spreading the payments back out over a 60 month time period. Another way a Chapter 13 bankruptcy can be very helpful is by taking care of any missed payments. In this way the question is not whether people can keep his/her vehicle in a Chapter 13, but how a Chapter 13 can actually make it easier for persons keep their vehicles. When you put the amount owed in your Chapter 13 plan it is the total amount owed, including any back payments owed. This really comes in handy if you are behind on your payments and your car lender is threatening repossession. Once you file your Chapter 13 your vehicle loan will be treated as current, no matter how far behind you were prior to the bankruptcy being filed. Chapter 13 Cramdown on Vehicle Loan Another benefit to filing a Chapter 13 with a auto loan is the possibility of performing a cramdown. A Chapter 13 cramdown on a vehicle loan is when a consumer has the option to pay back the fair market value of their car, truck or other motorized vehicle instead of the total amount owed or principal balance of the loan. In order to qualify for a cramdown of the vehicle loan the loan must have been made more than 910 days prior to the bankruptcy filing. In these cases, you can pay back less than what you owe on the vehicle, reduce the interest rate, and spread the amount owed out over 60 months. The remainder of the balance owed is paid the same as you are paying your unsecured creditors, which can be 0%. Chapter 13 and a Car with Too Much Equity A Chapter 13 can also help in another situation where a Chapter 7 cannot. This is the situation where you have too much equity in your vehicle. This is a rare situation, but sometimes happens when you have obtained or financed your vehicle in a less common way; such as, inheritance, paying cash for an expensive vehicle, using a 401K withdrawal to pay for a vehicle, etc. Alabama does not have a motor vehicle exemption. Instead of a motor vehicle exemption, Alabama has a Wildcard exemption that applies to all types of personal property, including your vehicle. If the value the equity of your vehicle along with the value of the equity in your other personal property substantially exceeds your bankruptcy exemption there can be an issue. If you have too much equity in your vehicle, this can be a problem in a Chapter 7; however, in a Chapter 13 you can just pay that "extra equity" off through your Chapter 13 plan, over a 60 month period, normally with a very affordable payment amount. Conclusion: As you can see from the information above, there are many ways that people might be able to keep their car after filing for bankruptcy. Both a Chapter 7 and a Chapter 13 will allow you to keep your vehicle as long as you meet a few criteria. Do not be afraid to file because of this "issue". Call 256-739-1962 or click here to speak with or schedule an appointment for a free consultation with a Chapter 7 and Chapter 13 Bankruptcy lawyer at Collins Law Offices, PC. We know filing a Chapter 7 or a Chapter 13 is not an easy decision. We want you to have all the information you need to make that decision before you pay us anything. Many of the clients I meet with believe that if they file bankruptcy, they will lose all their stuff, i.e. cars, house, etc. About the same number of clients believe that if they file bankruptcy they can keep the stuff they owe on without paying for it. Neither of these beliefs are true.
First, the great majority of people who file bankruptcy can keep the stuff they want to keep. If you file a Chapter 7 bankruptcy, you must continue to pay for the stuff as per your original agreement with the lender. If you file a Chapter 13, you can pay for the stuff through a plan and many times reduce your interest rate, payments, and sometimes even the balance to be paid back. A Chapter 13 will also take care of payments you have missed prior to filing. Even though a bankruptcy can sometimes help with payments, you still must pay for most property for which you owe. The most common exception to this rule is for what the bankruptcy law call "non-purchase money security interest in household goods." These are debts where when you borrow money, normally from a finance company, the lender asks you about appliances, furniture, electronics, or tools you already own and lists these items as collateral for the loan. The bankruptcy law allows you to avoid these liens in many circumstances, and thereby keep this type of stuff without having to pay the debt on it. Yes. All collection attempts by creditors are to stop as soon as your bankruptcy is filed. When your bankruptcy is filed the "automatic stay" goes into place. This prohibits debt collectors from making any effort to collect any debt against you. It stops phone calls, letters, lawsuits, garnishments, foreclosures, and repossessions.
The automatic stay remains in effect during the pendency of your bankruptcy. It can be lifted by secured creditors to whom you are collateral to or to secured creditors to whom you were supposed to make payments to during the bankruptcy, but have not. Although the automatic stay goes into effect immediately when your bankruptcy is filed, in reality creditors will not receive notice from the bankruptcy court for 7 - 10 days. For this reason you or your attorney should inform creditors who are threatening to take actions such as foreclosure or garnishment that you have filed bankruptcy and provide the creditor with a case number. Creditors who knowingly violate the automatic stay will be required to reverse any adverse action they took after the automatic stay went into effect (such as foreclosure or repossession) and may be subject to paying fines and debtor's attorney's fees. If you are being harassed by collections efforts of creditors and debt collectors, contact me by clicking here or another qualified bankruptcy attorney in Alabama. The initial bankruptcy consultation is free. 3/5/2020 Will a bankruptcy in Alabama stop a garnishment that is already being deducted from my paycheck?Read NowYES. I have been getting a lot of questions about garnishments lately. Both Chapter 7 and Chapter 13 bankruptcy filings in Alabama will stop garnishments. This is accomplished in a two step process. First, we must file your bankruptcy with the bankruptcy court and thereby obtain a case number for your bankruptcy.
Second, in the Court which issued the garnishment (normally your county’s Small Claims Court, District Court, or Circuit Court) we file a Motion to Quash Writ of Garnishment. In this motion we ask the Court that issued the garnishment to enter an order stopping the garnishment and to return to you any money the Court is holding or receives in the future from the garnishment. This means that if we can catch it in time, we may be able to get some of your money back. Having said this, I would strongly recommend filing a bankruptcy prior to a garnishment going into effect. I say this only because I know a garnishment taking 25% of your wages is not going to leave much to live on, much less enough to save to pay for a bankruptcy. Please note that a bankruptcy will not stop a garnishment or income withholding order related to child support. 3/5/2020 Do I qualify to file a Chapter 7 bankruptcy in Alabama under the “new” bankruptcy laws?Read NowMany people have been convinced that the bankruptcy reforms that went into effect in October of 2005 have made it impossible for most people to file Chapter 7 bankruptcies. Nothing could be further from the truth. Yes, there is now a “Means Test” which was intended to screen out people with “too much income.” But, in my experience almost everyone whom I have counseled with regarding filing a Chapter 7 bankruptcy who could have filed for Chapter 7 bankruptcy before the 2005 reforms still qualify to file a Chapter 7 bankruptcy in Alabama after the reforms. Nationwide studies have confirmed this -- Porter Study Finds Bankruptcy Law Reform Has Hurt the Poor Most and Bankruptcy Reform’s Impact: Where Are All the “Deadbeats”?
How does the “Means Test” work? First you see if you are over or under the median income for a family of your size in Alabama. For a quick check click here. If your household income is under the median income for the same size household in Alabama, then you have passed the “Means Test” and qualify to file a Chapter 7. If you are over the median income, it DOES NOT mean you are disqualified from filing a Chapter 7 bankruptcy. Most people can still file. There is just more paperwork to do. With the additional paperwork you are allowed to deduct taxes, housing costs, transportation costs, secured debt payments, medical costs, and many other costs. After deducting these costs, most people have very little income that could be used to pay unsecured creditors; and therefore, can file a Chapter 7 bankruptcy. The bottom line is, if you are having financial problems, do not let the “Means Test” scare you away from seeking good legal advice from a qualified bankruptcy attorney. The qualifications to file a Chapter 7 bankruptcy in Alabama are still fairly low. Despite anything you may have heard, there is a very high chance you can still file a Chapter 7 bankruptcy. And, if you are one of the few who cannot file a Chapter 7, you can probably file a Chapter 13 bankruptcy and still be protected from creditors. 3/5/2020 A debt collector called me and said “We will garnish your next paycheck.” Can they do this?Read Now I am continuously amazed at the depths some debt collectors will go to in order to scare unwary debtors into making payments they cannot afford at the time. The statement “We will garnish your next paycheck” is probably a lie.
In Alabama in order for a creditor to obtain a writ of garnishment against your employer to withhold money from your paycheck, that creditor must have a judgment against you. In order to have a judgment against you, that creditor must have filed a lawsuit against you and won either after a trial or by default, that is, because you did not file a response. Normally when this threat is being made, a lawsuit has yet to be filed. How do you know if you have been sued? First, if suit has been filed against you, you should have been served with a Summons and Complaint by either the sheriff’s department of your county or by certified mail. However, if you cannot be found by the creditor, the creditor may have you served by publication, that is, by running a notice in the newspaper in the county of your last known address. If you are still unsure, you may call the clerk of court of your county. What if I have been sued? See a lawyer immediately. Depending on which court, Small Claims/District or Circuit, you have either 14 or 30 days respectively from the day you were served to file an answer. Filing an answer generally denying the allegations in the lawsuit will prevent the creditor from obtaining a default judgment against you and will lead to your case being set for court after a few months. This will give you time to save money and/or get your bankruptcy filed. What if I already have a judgment and/or garnishment against me? If you already have a judgment and/or garnishment against you, I would again suggest you see an attorney immediately. You may be able to have the judgment set aside or appealed, but only if you act very quickly. This may also be a good time to take a strong and hard look at bankruptcy. With a bankruptcy you should be able to discharge the judgment prior to garnishment and stop any garnishment that is already in place. Upon filing a bankruptcy, you may even be able to have a portion of any money garnished from your check returned to you. The bottom line is do not let harassing calls from creditors or debt collectors scare you into giving them money you cannot afford to give them. Many will say anything they think will frighten you. If a debt collector says anything that worries you, make an appointment with an attorney and see what your rights are. It’s probably a good time to take a look at your financial situation anyway. Please email me with any questions regarding the topic of garnisments or any other bankruptcy or debt related topic. Filing for bankruptcy is a heart wrenching decision. On the one hand you want to do what you promised your creditors you would do, but on the other hand you have to house, feed, and clothe your family and yourself. There is no question that bankruptcy should be the last resort, but as to whether you should file or not, my classic lawyer answer is “It depends.”
First, we need to look at why you are considering filing bankruptcy. The most common reasons are the following:
If your answer to any of these questions is “Yes”, then it may be a good time to see an Alabama bankruptcy attorney. This does not necessarily mean you should file bankruptcy, but it does mean you may need some legal advice. The attorney may suggest some of the following alternatives to bankruptcy:
If any of these alternatives allow the possibility of a LONG TERM solution, then they should be greatly considered even though it may call for tough decisions and hard work. Why? Although bankruptcy can be a “quick fix”, it comes with some serious long term consequences to your financial future. The bottom line is I and many other Alabama bankruptcy attorneys offer free initial consultations, so it will not cost you anything to see what your options are. If after talking to an attorney, you think you can dig yourself out of the hole you are in without bankruptcy then definitely try that. But, if it does not work out you will be prepared and should have a plan. If you have further questions regarding this or other Alabama bankruptcy, debt, or budgeting questions please email me. Here is a brief overview of a bankruptcy.
There may come a point in a person's life, whether its due to health problems, spending problems, employments problems, etc., where a person owes more money than even the tightest budget will allow him to pay. When this happens and monthly payments begin to be missed, the people and businesses who are owed the money (the creditors) start calling and sending letters. Eventually, if the creditors are not satisfied, there are foreclosures and repossessions of vehicles and/or lawsuits getting filed which will then lead to judgments, garnishments and liens. A bankruptcy can stop most of these bad things from happening. A bankruptcy can immediately stop the phone calls, letters, lawsuits, garnishments, foreclosures, and repossessions. This is called the Automatic Stay and it "stays" all collection efforts. A Chapter 7 bankruptcy will wipe out almost all unsecured debt, like credit cards and medical bills. Most of the time under a Chapter 7 you will be able to keep your house and vehicles if you are current or almost current on those payments and continue to make your payments to those creditors as agreed to in your contract. A Chapter 13 allows you to create a plan to pay some or all your debt back to the creditors. A Chapter 13 can stop your house from being foreclosed on or your car from being repossessed by allowing you to pay back your arrearage over time. It will also protect a house or vehicle in which you may have too much equity under the State of Alabama's exemption laws. Alabama's exemptions are very low, so this comes in handy frequently. The amount you pay back is based on your income and expenses and the amount of debt you need or want to pay back over the length of the plan. Most plans last for five (5) years which is the maximum length of the plan. So, the bottom line is a bankruptcy can stop collections of debt by creditors, wipe out all or part of your debt, and/or create a plan to pay back some or all of your debt while normally letting you keep the real and personal property you want to keep. It is not all rosy though. There are issues that can make filing bankruptcy very tough. Bankruptcy also has long term effects on your credit. I will deal with these issues in later posts. If you are having financial difficulties, find out the truth about how bankruptcy may be able to help. Request my free book and/or call attorney Richard L. Collins or another experienced bankruptcy attorney. |
AuthorI am an attorney located in Cullman, AL. I practice extensively in the area of consumer bankruptcy law, that is, I file Chapter 7 and Chapter 13 bankruptcies for individuals. I handle cases all over North Alabama and have helped hundreds of clients through the bankruptcy process., I receive many referrals from former clients and their families and other attorneys. Why? Unlike other firms, I have a local office. If you are from out of town, we have the technology available to keep your traveling to a minimum. Also, unlike many firms, you will meet personally with an attorney, not a paralegal. An attorney will handle your case from start to finish. , Archives
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