Reaffirming a Debt in Bankruptcy
Why won't my attorney represent me on my reaffirmation? And because I am now stuck representing myself, how do I proceed? If you don't understand the reaffirmation process, this guide will help you through this part of your Chapter 7 bankruptcy case.
What is a reaffirmation?A reaffirmation is an agreement only available in a Chapter 7 bankruptcy in which you agree to accept legal responsibility for a debt as if you had never declared bankruptcy. People generally want to reaffirm car loans and mortgage debt, and they wish to do so for two specific reasons - 1) they believe reaffirming will help them to repair and rebuild their credit and 2) the creditor has a policy of repossessing the property being financed if no reaffirmation is signed. In Nevada, if you have a vehicle loan financed at the dealership and you purchased the vehicle in 2012 or later, the lender cannot repossess the vehicle just because you filed bankruptcy and a reaffirmation is likely unnecessary.
A reaffirmation is NOT just your decision.In order to reaffirm any debt during chapter 7 bankruptcy, the creditor must timely OFFER you a reaffirmation. No offer, no reaffirmation. A creditor may decide not offer you a reaffirmation if you are already delinquent on the debt or if they know from experience that the court may not approve of any reaffirmation of this debt. A reaffirmation must be filed with the court BY THE CREDITOR BEFORE THE DISCHARGE IS GRANTED.
If your attorney represents you on a Reaffirmation, the bankruptcy judge must still sign off on your reaffirmation agreement if your budget indicates you cannot afford to make the payment. But if your attorney is not willing to represent you on a reaffirmation, the bankruptcy judge will have to carefully and completely review whether or not the reaffirmation offered to you is in fact in your best interests.
So why won't my attorney represent me if all that needs to be done is to sign off on the paperwork?There are many reasons why most bankruptcy attorneys will not represent you on a reaffirmation agreement. Issue 1 for me is liability. If I sign off on your vehicle reaffirmation, and 61 days later, your engine blows up, you will likely blame ME for having put you in this pickle, having to pay for a car that is worth nothing. But if the judge approves the reaffirmation, the judge is on the hook for your anger. And even better, if the judge decides the reaffirmation is NOT in your best interests, the result is you get to have your cake and eat it too. You can keep the vehicle as long as you pay for it, but if you decide to return it or cannot, for any reason, make the payments, the creditor cannot sue you to collect the balance you owe.
Another issue is the strategy of having the debt reported on your credit. While you may be convinced that having timely payments on this debt will repair your credit, the risk you are taking to get this nominal benefit is "too high" in my professional opinion. If you miss even one car payment, all the good you now expect to get on your credit will be undone, and reaffirming will have damaged, not helped, your credit.
Finally, the cost for me to take the time to complete and review a reaffirmation agreement will increase the fee I have to charge. Should I charge you for each reaffirmation agreement I complete and review? Or should the people who have no vehicle loans and don't need to reaffirm pay for a portion of the time I must include to provide reaffirmation services to someone else? After all, a bankruptcy is a "flat fee" case. If everyone pays the same fee, those with reaffirmations get more for their fee while those who don't have secured debt get less legal services. This doesn't seem fair to me.
So how am I as the client, supposed to represent myself on a reaffirmation?There is two parts to representing yourself on a reaffirmation, filling out the paperwork, and showing up in court. Showing up in court is actually the easy part. The Judge is there as your protector, and from your perspective, it is a win-win situation. Tell the Judge how you can afford to pay your car payment or mortgage loan and stay within your budget (from Schedules I and J on your bankruptcy petition) and the judge will probably approve this reaffirmation. Tell the judge about how important keeping your car is to you, and the Judge will probably NOT approve the reaffirmation. By not approving the reaffirmation, you win because the lender cannot repossess the property unless you stop paying for it. As to your mortgage loan, the judge will likely NEVER agree to approve a reaffirmation because unless your payments are delinquent, THE CREDITOR CANNOT FORECLOSE even without a reaffirmation . Furthermore, the amount of liability you might be accepting with an approved reaffirmation on a mortgage far outweighs the small benefit of rebuilding your credit after bankruptcy.
So I have the Reaffirmation Paperwork - how do I complete it? Begin with the Cover Sheet!Start with the Reaffirmation Cover Sheet - called Official Form 427. The creditor has probably filled in your name, the amount of this debt and indicated what property the debt is financing. Typically, you start filling in information at Question 6. You will be copying numbers from Schedules I and J of your bankruptcy petition, so you have those documents in front of you.
Beginning on line 6a, copy the amount listed on Schedule I, line 12.
On line 6b, copy the amount on Schedule J, line 22.
On line 6c, list the total amount all debts you plan to reaffirm that was NOT included anywhere on Schedule J. You should have listed payments on all debts on Schedule J, so unless you forgot these payments, whether for your vehicle loans, loans for furniture and appliance purchases, or your mortgage, this amount should be $0.
On line 6d, subtract the amounts of lines 6b and 6c from line 6a. [6a - (6b+6c)] If the result is a negative number (such as -100.00) express this number in brackets (such as [100.00].
On line 6e, indicate your total net household income.. Unless your income has changed since filing bankruptcy, this is probably the number on Schedule I, line 12.
On line 6f, unless your expenses have changed since filing bankruptcy, copy the number from 6b. If your expenses on Schedule J have changed, get a blank Schedule J and fill it out with updated numbers. Then put the total of these expenses from line 22 , line 12 on line 6f of Schedule J.
On line 6g, the amount should be the same as on line 6c of Schedule J.
One line 6h, subtract the amounts on lines 6f and 6g from the amount on 6e. [6e - (6f+6g)] As with line 6d, if the result is a negative number, express this number in brackets.
Wow, for just a Cover sheet, going through this process was probably enough to make your head explode! Fortunately, the rest of the many pages left in the reaffirmation aren't so bad and you have completed the most difficult part of the process.
The rest of the cover sheet involves answering questions that are pretty self explanatory, and then you sign.
Moving on to the Actual Reaffirmation AgreementThe creditor should have already filled in a substantial portion of the Reaffirmation Agreement itself. It is important that you read through this agreement carefully. Information that doesn't apply should be crossed out. Under a section marked Part B, there is a place for you (and your spouse, if this is a joint debt) to date and sign this agreement.
Part C indicates where your attorney would sign. Since your attorney won't sign, just leave that blank.
In Part D, you need to go back to filling in information from your budget (Schedules I and J). In part 1, if your budget [Schedule J, line 23c] had a positive number, fill out the top part of this section. In the first space, you enter the amount from Schedule I, line 12. On the second space, you enter in the amount on Schedule J, line 22, minus the amount you had put in for making the payment on this debt. On the final space in part 1, you write in the total of Schedule J, line 23c and the amount of the monthly payment on this debt. If your budget numbers have changed since filing bankruptcy, use the new numbers rather than the old numbers.
But if on Schedule J, line 23, the number is a negative amount, do not fill out the top section of part 1, but complete the next paragraph, which is inexplicably not numbered. Instead, using your own words, explain how you believe you will be able to afford to pay this reaffirmed debt. For example, Mom has agreed to give me money or I have started a second job. Or whatever your story is, this is where you tell it to the judge.
On part 2, you (and your spouse, if filing jointly), sign and date the Reaffirmation.
But wait - there's more. Part E is the Motion for Court Approval of the Reaffirmation Agreement. Check the first box. If your expenses are larger than your income, then you should also check the second box. Then sign and date for the final time.
Make a copy of this reaffirmation agreements and send the original agreement to the creditor. The creditor's address should be on Part B of the actual reaffirmation agreement.
What happens once the Creditor gets the Reaffirmation Agreement?After receiving the Reaffirmation Agreement, the creditor will file it with the bankruptcy court. The court will mail you a notice of the date and time of the reaffirmation hearing. Compared to completing the reaffirmation hearing, meeting with the judge will be a pleasure. It is important to show up on time for this proceeding, but you do not need to worry about wearing business attire or looking like a lawyer. Your normal work clothing will be perfectly fine for court. There may be a volunteer attorney at the courthouse to answer any of your questions, and your Reaffirmation hearing should be over and done with within 30 minutes.
In Las Vegas, the Judges are all pretty nice but you do have to listen to what they say. If they refuse to grant your reaffirmation, it doesn't mean you can't keep your car. It just means that if you can't continue paying for the car, there won't be any financial repercussions to you.
But if the judge does approve the reaffirmation, keep that car in good running order and well insured. Because if you stop paying for it, the reaffirmation means the car lender can sue you in addition to just repoing the vehicle.
One important thing to remember is that the courtroom is not the same place where your 341 trustee meeting happened. It may or may not be in the same building. One thing is for sure, the Notice of the Reaffirmation hearing will state exactly WHERE to go for this important court hearing. Good luck!