Chances are if you have a secured debt listed on your bankruptcy (i.e. vehicle, second or third mortgage) you will be sent what is called a reaffirmation agreement from the lender. What this is, essentially, is a way for creditors to protect themselves from a total loss. Theoretically, you could simply stop making payments, surrender the collateral, and then have that debt discharged through your bankruptcy –a definite hit to the creditor.
So, the creditor sends agreements to attempt to get our clients to reaffirm their debt. This puts clients back on the line for the debt that they are filing bankruptcy to discharge!
If a reaffirmation agreement is signed it means that if you were to fall behind on payments at any point, the lender could repossess the collateral, garnish your wages, or seize funds from your accounts.
Lenders may pressure debtors to sign these agreements by holding the threat of repossession over the debtors head. The lender can repossess the collateral if a reaffirmation agreement is not signed. This fact is one that can tend to scare debtors into putting themselves back on the hook for that secured debt.
In most cases, a signed reaffirmation agreement is unnecessary and the threat of a repo minimal so long as the debtor continues to make payments on time and keeps those payments current. The creditor is still making money this way so why repossess and cut off that income?
Because of this, reaffirmation agreements are rarely advised to be signed since most debtors are able to keep the collateral and still have the debt discharged when their bankruptcy is finalized.
It’s necessary to be careful during this time. The lender might cease automatic payments and send statements to your attorney instead of directly to you. Despite this, it’s important to continue payments every month otherwise the property will be repossessed.
Go to www.kainscott.com to discuss your bankruptcy options with MN’s NICEST bankruptcy law firm.