After filing a Chapter 7 bankruptcy and after your creditor’s meeting, the creditor that you owe for your house or car may send a document called a Reaffirmation Agreement to your attorney. A reaffirmation agreement is a document that your attorney will help you fill out. You have a choice of whether or not to sign a reaffirmation agreement. It asks for your monthly household income, monthly household expenses, and how much you still owe on your house or car. The document also asks how much your monthly payment is on your house or car, and will ask you and your attorney if you have enough money each month to make your payment on the debt that is referred to in the reaffirmation agreement.
Let’s pretend you have one mortgage and two car payments. You will receive a reaffirmation agreement for each of those payments – for a total of three reaffirmation agreements. Your attorney will guide you in which of the document should be filled out. In North Carolina, the bankruptcy Judges have discouraged the signing of reaffirmation agreements for real property (in other words, your mortgage) unless there is a change in the interest rate or monthly payment under the reaffirmation agreement. Reaffirmation agreements are most often signed for vehicles. In most districts, if you do not sign the reaffirmation agreement for your vehicle, then the creditor has the right to repossess the car.
If you do sign the reaffirmation agreement for a car payment, and the document shows that you are able to afford the monthly payment, when the document is submitted to the court, there will generally not be any problems. You will get to keep your car as long as you keep making the payments. However if, in the future, you are unable to make your car payments, the creditor has the right to repossess the car and you will be responsible for any deficiency balance after the repossession. If you sign the reaffirmation agreement but the document does not show that you are able to afford the monthly car payment, there will be a court hearing in front of the bankruptcy Judge for you and your attorney to explain why you should be able to keep your car.
If you do not sign the reaffirmation agreement for a car payment, the creditor will have the right to repossess your car. If you do not sign the reaffirmation agreement for a house payment, you will be able to keep your house as long as you continue making the payments. If, in the future, you are unable to continue making your house payment, the creditor will have the right to foreclose on your home BUT you will not be responsible for any deficiency balance after the foreclosure.
Reaffirmation agreements can be complicated, but your attorney will guide you through the process. Reaffirmation agreements are to be submitted to the court no later than 45 days after your first scheduled creditors’ meeting date. If you have not heard from your attorney regarding your reaffirmation agreement within 3 weeks after your creditors’ meeting, contact your attorney so that they can request the reaffirmation agreement from the creditor.
If you have any questions or would like to learn more about filing bankruptcy, contact Duncan Law in Charlotte, NC or Greensboro, NC for a free initial consultation.
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Terry,
Everyone talks about the reaffirmation of debt in a Chapter 7 Bankruptcy and most bankruptcy attorney websites talk about reaffriming auto debt. Would you advise of reaffirming a mortgage, if someone has never missed a payment an is current on their mortggage here in NC?
Derrin,
Thanks for the question – it’s a good question at that. We can’t give specific legal advice via the Internet but the general answer to your question is you usually do not need to sign a reaffirmation agreement for a mortgage. What we have seen is that the bankruptcy judges in North Carolina don’t feel that it is necessary to reaffirm that debt. You would just continue making payments on the mortgage/debt despite the bankruptcy. However, if you fail to make a payment – just like any other time, they can foreclose on your house. Again, generally you don’t need to sign a reaffirmation agreement for your mortgage but you would want to touch base with your bankruptcy lawyer to make sure there isn’t something unique to your specific situation that would change that.
Can u make a deal with the mortgage company that u will only continue your payment if they lower the interest rate at least so you can afford to keep it?
Josh,
Thanks for the question. You can try to negotiate with the mortgage company but they, ultimately, can do what they want to do. If you are willing to surrender the house then you have some bargaining power but you would have to negotiate a modification or refinancing of the house. That sometimes takes quite a bit of time and may not be able to be realistically done within the timeframe of a Chapter 7 bankruptcy. However, it certainly wouldn’t hurt to contact the mortgage company and explore your different options. Best of luck!
Duncan Law Team
Does the equity in your vehicle have to be within the NC exemption to be able to obtain an reaffirmation agreement.
My van currently has an appraised value of $15,000. My current payoff is $7193.96, good until 7/6/12. It is my only vehicle, and I have no other means of transportation.
I owe more on my house than it is worth.
After my divorce I was able to keep my house and auto loan current. Unfortunately, I got behind on credit card debt and it snowballed into a huge mess.
Naomi,
Thanks for reading our post and visiting our website.
Typically, you can still sign a reaffirmation agreement even if there is non-exempt equity in the vehicle. You would just need to show in your budget that you can afford the vehicle each month. The problem with your non-exempt equity will be an issue that will have to be addressed with the bankruptcy Trustee more so than the creditor.
As with any situation dealing with non-exempt equity and property like houses and cars I would encourage you to contact an experienced bankruptcy lawyer near you. They can give you exact information based on your situation. We are unable to provide legal advice unless we represent you.
Best of luck!
Damon Duncan & the Duncan Law Team
I plan to convert from a chapter 13 to chapter 7 because I cant afford the $500 mo payment and would like to reaffirm my vehicle.for $230 a month. I owe $7697. Its value is approx $8200.
A collections agency recently bought my car loan from Wells Fargo. Ive reached out to the collection agency to see if they are willing to reaffirm the loan.
This vehicle is my only means of transportation. My fear is my lawyer/courts will not approve the reaffirmation if the creditor offers one.
In NC can I reaffirm my car loan w/out my lawyer/courts approval? If so what would be the downsides and benefits of this decision for me?
Thanks in advance.
My first suggestion to anyone who has an attorney already representing them is to first try contacting them to get their thoughts.
With that said and based on the information you provided, I don’t think anyone would have a problem with you reaffirming the vehicle. If you show you can afford the vehicle payments and the creditor is willing to work with you then I’m not sure why you wouldn’t be able to sign a reaffirmation agreement.
You have to be careful when converting from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy that the creditor is willing to work with you to get current because, naturally, in a Chapter 13 bankruptcy you will be a little bit behind on the payments since they were only getting, most likely, 1/60th of the amount owed each month compared to the full monthly payment.
You can sign a reaffirmation agreement without your attorney’s consent but the court must approve the reaffirmation agreement. Best of luck!
Duncan Law Team
Hi I filed for chapter 7 and reaffirmed my mortgage. However things changed and two years later I’m having a very hard time making my mortgage payment. I live in Arizona and wanted to know what are my options. Foreclosure or shortsale? Also can the bank sue me if any of these happens?
It’s tough to say. I would encourage you to contact your bankruptcy lawyer in Arizona to see what kind of assistance they can provide. I’m not familiar with the state specific laws of Arizona. You do have an option of a foreclosure or short sale but they may be able to still come after you for a deficiency balance on either of those. Again, contact a local attorney and they can give you some better insight into how to handle the reaffirmation agreement on real property.
Duncan Law Team