Many of our clients at Milavetz, Gallop & Milavetz are unsure as to whether or not they should sign a reaffirmation agreement.
Typical Secured Debts: Home Mortgages, Car Loans, and Home Appliances
There are two portions to your mortgage agreement. The first portion is the note, whereby you promise to repay the money you have borrowed. The second portion is the mortgage document which is recorded with your local county recorder. This document evidences your promise to repay the monies you borrowed (other secured debts such as cars or appliances have perfected UCC security liens which are on file with the State of Minnesota).
What Happens When You File Bankruptcy?
The indebtedness that you promise to repay for your home mortgage or car loan is discharged by the United States Bankruptcy Code. In other words, you no longer owe the monies for these debts. However, if you fail to pay the mortgage or car payments, the lenders, with an appropriate security interest, will foreclose upon the homestead or they may choose to repossess the vehicle.
What is a reaffirmation agreement?
A reaffirmation is simply a restatement of your original promise to repay the amounts contained in the note. This document nullifies the bankruptcy discharge as it pertains to the promise contained in the note. The agreement must be in writing, and should spell out the terms of the contract, including interest rates. It should also include a portion which the attorney should sign (to show approval of their client signing the document). The debtor may be required to explain how they will be able to afford to pay back this indebtedness (in some cases your budget in your bankruptcy schedules will have already provided to pay these debts). If your attorney approves the document and you both sign it, it may be filed with the court. No further hearing will be required. However, if your attorney refuses to sign it, then you will have to schedule a hearing with the bankruptcy judge, who will then decide if it is your best interest to sign.
Should you sign the reaffirmation agreement?
You should not sign this document until you confer with your attorney. One negative result of not signing the reaffirmation agreement is that your lender is not required to report your payments to the three major credit bureaus. This could hinder your future credit score improvement (however, other on-time credit payments may also improve your credit score). The bankruptcy code also requires you to reaffirm a car loan, or it may be repossessed. Some lenders may attempt to repossess the vehicle, and others may not do so. If you have little or no equity in your homestead, or your over secured vehicle is having engine problems, it may be best not to sign the reaffirmation agreement. Your ability to pay future indebtedness should always be discussed at length with your attorney.
Do Not Hesitate To Call
Remember, it is always possible to reduce your interest rate, spread out your payments over a longer period of time, and/or reduce late payment charges when renegotiating the terms of your reaffirmation agreement. Our experienced attorneys at Milavetz, Gallop and Milavetz will be happy to meet with you to discuss your options! Please contact us at 763-560-0000 for an appointment for advice regarding your potential bankruptcymatter!