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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. 3/5/2020 I am upside down on my car loan and am struggling to make the payment, but I really need my vehicle. Can an Alabama bankruptcy help me?Read NowPossibly. In a Chapter 13 bankruptcy you can, under certain circumstances, do what is called a cramdown. If you meet the criteria for a cramdown, you are allowed to only pay back the current fair market value of the vehicle, not the total amount owed.
For example, let’s assume you bought a car 2 ½ years ago, financed $25,000.00 and because your credit was not the best, you have a 12% interest rate. Your payments would be about $556.00 per month. You would still owe $14,352.00. Let’s say, per the NADA Used Car Guide you, the vehicle is now worth $8,000.00. By putting the vehicle in your Chapter 13 plan you could (1) extend the loan to 5 years, (2) reduce your interest rate tremendously (plan rates are currently at 5 to 5.25%, (3) in effect reduce your car payment to $152.00 (less than 1/3 the previous payment). So, what’s the catch? First, you must have had your car loan for at least 910 days, basically 2 ½ years in order to qualify for a cramdown. If you have not had your car for 910 days, you can still lower the interest rate, but not secured principal. Second, by extending the loan through the length of the plan, you may not be able to obtain the title on the vehicle until the end of the 5 year plan. Third, to maintain the benefit of the cramdown, you normally must complete your Chapter 13 plan. If your case is dismissed or you convert to a Chapter 7, some issues may arise. Fourth, your car must be worth less than the amount owed. If your car is worth the amount owed or more, then there is nothing to cramdown; however, you may still be able to lower the interest rate on the remaining amount owed on the loan. A Chapter 13 bankruptcy may be able to fix many of your cash flow problems. Please educate yourself and do not let yourself continue to struggle for no reason. Order my book by clicking here and/or contact me or another experienced bankruptcy lawyer immediately. |
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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