Why Reaffirm ?

[gak555]

I filed for Chapter 7 last week and my attorney told me not to reaffirm my car payment (which I want to keep). He said as long as my payments are current they will not repo the vehicle. Does this sound right ?

[CPO]

That's a great question. Seems to be a grey area. The new law does not specifically provide for the "ride thru" option as the old law did.

It has modified the process to provide for redeemtion or reaffirmation only, if you want the BK court to PROTECT your right to the property.

Many creditors and petitioners have not met their obligations to reaffirm or redeem, some courts have lost paperwork, refuse to sign the documents, creditors and/or debtors lost or not signed paperwork, etc as to create a "no reaffirmation" discharge.

Some lawyers won't sign them. It obligates them to ensure your able to make the payments. My lawyer does not sign them. So, I rely on the court, if possible.

To me the REAL question is "how is my ownership of property in which I'm making timely payments on protected when reaffirmation does not take place."

This probably is included in consumer law of your state, IF AT ALL.

You may have NO PROTECTION without the BK courts' order of reaffirmation.

Regardless, if the property is repo'd by the creditor, your going to have to return to court, probably with a lawyer, and sue to attempt to get the property back...assuming you win.

A creditor, through mistake or obligation, may feel that repo is their only way to protect their property, and without a court order of reaffirmation or state consumer law preventing them from doing so, they will.

In the meantime, you will be without the property, making payments, paying for legal fees and fighting in court.

So, without redeemtion or reaffirmation protection from the court, you may be looking over your shoulder until payoff time is near.

And, who says they must release the title after you have paid the item off?

Your in default on the original contract, right?

??

Regards,

CPO

Oh, and one more thing. Without a reaffirmation agreement so stipulated, they probably won't be reporting to the credit bureaus either. Rebuilding your credit may be just that much more difficult.

[HHM]

A very good post on reaffirmations, thank you.

[CPO]

A very good post on reaffirmations, thank you.

Thanks, and THANK YOU!! for your wisdom and experience.

We'd be lost without it!

CPO

[manglicmot]

My attorney didn't have me sign reaffirmation papers for my car loan either. I was told that as long as I keep payments current, I will be fine. He knows the law better than me, so I assume there is some California law or regulation that will let me keep the car without reaffirming. I don't believe he would tell me that knowing that I could potentially sue him if my car is repoed without signing a reaffirmation.

[keepmine]

Just because a lawyer signs a reaffirmation agreement, it does not make him liabile for your debt. He signs it because he believes you have the resources to make the payments. The code uses the term undue hardship to describe whether it's approriate to sign a reaffirmation agreement.
The reason many won't sign a reaffirmation is, they don't believe it is in your best interest. Remember, if you reaffirm and your situation goes south, you are on the hook for any deficiency balance should your home be foreclosed or, an auto repoed. If you don't reaffirm, you walk away with no liability.
I didn't reaffirm my mortgage when I filed nearly 2 years ago and no problems. The mortgage compamy cashes the check every month and I get an annual statement {that has the disclaimer not an attempt to collect a debt}.

[no_it_all]

If you remain current in your payments a creditor cannot repo. Make your payments on time, keep the property, don't make the payments and property will be repo'd. Reaffirming has nothing to do with it. By reaffirming all you do is lose your right to <walk> from the debt if you later default. Which is not a big deal since you just went BK. The <only> negative I see with <not> reaffirming is your stellar payment history will probably <not> be reported to the CRA's. One caveat would be to make sure you are current when you file.

[HHM]

If you remain current in your payments a creditor cannot repo. Make your payments on time, keep the property, don't make the payments and property will be repo'd. Reaffirming has nothing to do with it. By reaffirming all you do is lose your right to <walk> from the debt if you later default. Which is not a big deal since you just went BK. The <only> negative I see with <not> reaffirming is your stellar payment history will probably <not> be reported to the CRA's. One caveat would be to make sure you are current when you file.

That is no longer true under Bankruptcy law (or, at least it is not entirely clear), but under certain state law, that may still be true.

Although by the letter of the law, the new BK law did away with "ride through" of secured debts, i.e. the idea that so long as you continue to make your payments, you are good to go...creditors have basically accepted ride through's anyway because it is is in their best interests to continue to receive payments.

Here is how I think this issue will ultimately work itself out in the courts...

If a debtor chooses NOT to reaffirm but is still current on their payments, the creditor has 2 options.

1. Repossess the car (the new BK law gives them this right since a debtor must either Reaffirm or Redeem under the letter of the law, thus, if debtor fails to do either, the creditor has the right to repossess the property).

2. Continue to accept payments.
If the creditor continues to accept payments, then once the BK is discharged, the creditor can only repossess (or foreclose) on a future default (i.e. missed payment). I think the courts are going to limit the remedy to repossess if a debtor fails to reaffirm to an open BK proceeding, i.e. they will limit the remedy to only bankruptcy.

In any event, for the most part, you DO NOT have to reaffirm and more likely than not, you will be able to keep the asset so long as you make your regular monthly payment on time.

[no_it_all]

In any event, for the most part, you DO NOT have to reaffirm and more likely than not, you will be able to keep the asset so long as you make your regular monthly payment on time.

Since there hasn't been a single case of a creditor <repo'ing> when the account was current and paid in a timely manner..I would agree. My <guess> is that creditors would rather have cash than old cars out back in the parking lot ;)

[no_it_all]

That is no longer true under Bankruptcy law (or, at least it is not entirely clear), but under certain state law, that may still be true.

Huh?

[HHM]

Huh?

The current bankruptcy law is written in such a way that the debtor is "required" to either reaffirm, redeem, or surrender an asset that is security for a loan. The option for the "ride through" has been "technically" eliminated from the BK Code. However, the act of, and legal standing of the creditor in repossession and foreclosure are controlled by state law. It is at this intersection of state and federal law (BK is a federal law), that is relatively untested...most state's law require a default by the debtor before a repo or foreclosure can proceed. Some states have better defined and more debtor friendly statutes that others. It remains to be seen if failing to reaffirm would be grounds for default and if federal law will trump state law on this issue.

However, as has been the experience of just about everyone on this board and others, so long as you are current on your payments, and remain so, there is very little risk of a repo or foreclosure since the creditor is usually better off to continue to receive payments than retake the property. The big negative for failing to reaffirm is you have no leg to stand on when it comes to the credit reporting of that particular debt.

[6ftladycop]

Does this information you have apply to Leased Vehicles too?

I see so much about keeping the car after BK that sometimes I wonder if leased vehicles come under this catagory?

[marzipan13]

I once had a lawyer tell me to not reaffirm because after BK something might happen (the car vandalized, stolen, etc) that isn't covered under my car insurance and the car is undrivable... but you'll still be responsible for the debt owed on the vehicle.

[HHM]

The question of whether to reaffirm or not really depends on your individual circumstances. Under the old law, it was a no brainer, you never reaffirm, and that same advice pretty much holds true under the new law. (but I think most attorneys simple default to that advice because it is the advice they are used to giving and gets them out of explaining that they would have to sign off on the reaffirmation and probably don't want to).

The legal implication of reaffirming is this...if you reaffirm, and later default on the car (or as Marz points out, something happens to the car but you are not covered by insurance), you will be liable for a deficiency balance (the difference between what you owe and the then current market value of the car). If you do not reaffirm, if you later default, etc, you are not liable for any deficiency balance. Thus, it is rarely in a persons best interest to reaffirm...and since car finance companies would lose too much money by forcing a debtor to accept reaffirmation or surrender, no creditor has tested the law.

[whatamess]

My lawyer has told me that there indeed HAS been cars repoed after non reaffirmation, but mostly Ford.
My lawyer refused to sign my reaffirm last week too due to negative $250. Only if we got a second income putting us well above the negatives would he sign. That could mean the dreaded 13 though, so no thanks....
Its terribly scary though, to pay while they can take it can take it any day. Like said, will we get ownership papers when payoff happens? Has anyone here?
My husband and I are going to try to look at it from a "We are renting and hopefully will own" point of view.
(If they came for this car we have car I think they would shreak anyhow. Its pretty trashed from two kids, a large dog and delivering newspapers before in wee hours while spilling coffee....)
WAM