Reaffirmations In Chapter 7 Don’t Come Into Play In a Chapter 13

Video Transcribed: 888-Debtline, Oklahoma Attorney Edward Kelley speaks about reaffirmations. What is a reaffirmation? When should I do it? How does it apply? So we’ve talked in detail, I’ll refer you to that video about reaffirmations on your home. Let’s talk in detail about reaffirmations on your car and the ability, even in a Chapter 7, to reduce your interest rate. Reaffirmations don’t come into play in a Chapter 13. So what should you reaffirm?

Well, again, your home, unless there are other reasons you may be better off not reaffirming, since they don’t gain any enhanced ability to foreclose on you and you’re just reassuming your personal liability. Which would be discharged if you don’t sign it. On a vehicle, if you want to keep it, definitely safer signing it as the creditor has the right to repossess the collateral even if you’re not behind, if you don’t sign the reaffirmation agreement.

Again, check the terms, check the interest rate. If it’s an auto, see if you can bring it down. It doesn’t apply on your home mortgage, unfortunately. And what about other kinds of reaffirmation? Well, anything that is a secure debt, properly secured by collateral, you can enter into a reaffirmation agreement. What about unsecured debts, credit cards?

Generally no, there’s a thing called a preference in a bankruptcy, so you can’t prefer one unsecured creditor over another. So you like your Chase card but you don’t like your Sears card, so you want to reaffirm Chase in theory. Can’t do it. Not allowed to pick one over the other. This particularly comes into play with your relatives, which generally not going to have any kind of secured debt. You know, a debt has to be properly secured to be considered a secure debt.

And there are lots of situations where you can strip off, even liens, and strip off debts within the bankruptcy. And I’ll talk about that in detail in another video, just about that. But debts and liens that have been added on to your home or your vehicle but weren’t used to purchase it, it may be very possible that you can get rid of those without losing the collateral.

However, any sort of purchase loan that is secured by collateral on personal property, got to reaffirm or they have the right to take it. Although it doesn’t apply on a house. Other considerations, if you have other secured loans or other, you know, your checking and savings account, although they can’t help themselves by doing set offs. There may be cross collateralization that will come into play.

Again, your attorney can tell you whether a debt is properly secured and whether it’s a lien that can be stripped or a debt that’s purely unsecured and will be discharged on its own. But the overarching thing here is, when you go into a bankruptcy … You know there are some attorneys who do not really include reaffirmation service at all. You want to read your contract with your attorney very carefully. If they’re not going to help you with the reaffirmation, then you’re going to be on your own with that, and that can be pretty daunting.

You know, if you don’t understand that if you don’t reaffirm your vehicle, you can very well lose it. I know that that’s happened to people. Or if you reaffirm your house and 10 years later you lose it and now you’ve got this personal liability that you could have avoided.

Or if you’ve got cross-collateralized properly secured loans and you don’t reaffirm one, but you don’t think about the impact on the other things, you can get yourself into trouble.

Reaffirmations In Chapter 7

And of course any reaffirmation, read the terms. You know, I haven’t seen a lot of creditors purposely try to deceive or up the amount owed or interest rate, but I have seen mistakes made and a lot of people don’t read these kinds of things carefully. Including attorneys at times, unfortunately. So be diligent, understand anything secured you’re generally not going to reaffirm anything unsecured. But any secured debt, again, anything that is properly secured by collateral, and that means different things in different context.

But again, I’ll talk about that in detail in a video about lien stripping and second mortgages and the like. But reaffirmations are a big component of a Chapter 7 bankruptcy. Again, I generally recommend if you’ve got an auto loan you’re upside down on, especially an older vehicle that may break down, although there’s a great temptation just out of lack of entropy, you just don’t want to mess with it.

You can end up reaffirming something that’s still going to keep you from really having a fresh start. But you want to go in and you want to come out of the bankruptcy accomplishing exactly what you want. So take a look at all your secured property. You know, this reaffirmation process applies to all personal property that’s secured.

So you’ve got a tractor out there, you got that motorcycle, you’ve got a commercial trailer, an RV, any of these things. If they’re secured, in general on a titled vehicle, meaning there’s a proper lien on the title or even if there’s just a solid agreement, generally, that was made in order to finance the purchase of that property.

If you don’t reaffirm it, in many cases, they can just repossess it even if you’re not one bit behind. So be sure and talk with your attorney in detail about your secured property and what reaffirmations you may or may not want to execute. Again, as always, if you have specific questions or just want to get in touch, Edward@wirthlawoffice.com