Reaffirming debts is something that is rarely done in bankruptcy, and almost never needs to be done. Reaffirming should not be confused with simply voluntarily continuing to pay discharged debt, which is what most people do on their secured obligations. That topic was discussed in another segment of the bankruptcy minutes series.
But there’s a few creditors (Ford Motor, Snap-On tools, Affinity Credit Union & TopLine Credit Union, to name a few) who won’t let you do that so called ride-through or “retain and pay” option, in which case you would either need to surrender the vehicle, refinance prior to bankruptcy, or redeem which is very rarely done, or reaffirm.
Reaffirming is a bit of a rigamarole, because it typically needs to be approved by a judge. The irony is that if your budget doesn’t show you can afford to make the payments, the judge may not approve it. And in order to qualify for chapter 7, we typically want to show that you don’t have disposable income so they don’t try to force you into a chapter 13. But with appropriate explanation we can usually get it to go through. (If the creditor is a credit union, no explanation is necessary). The fact is, you know the history of the vehicle, and if you had to replace it, you would typically be paying a much higher interest rate, other transactional costs, such as sales tax, and you are probably going to have a real tough time finding financing, right after the bankruptcy.
Some attorneys have a policy of always advising their clients to never ever reaffirm. I’m not that way. You have to have your car, so you can get to work, so you can pay for your car, so you can get back to work.
If it just so happens that your creditor requires a reaffirmation agreement, we can help you put that together, on a case-by-case basis. The dirty secret that these attorneys won’t tell you, is that reaffirming is extra work for the attorney, and they’re simply lazy. There is a lot of work. The most recent version of the reaffirmation agreement form itself is about 10 pages, and because they made it so long, they decided to make it slightly more complicated by having a two-page cover sheet. In addition, the actual reasons the attorneys will tell you that they don’t like to reaffirm, is that they don’t want you to get stuck paying for a car that is upside down. But if you have to replace it with the vehicle, it could be in the same situation, anyway, especially if you have to replace it with a high interest rate car loan. Also, the attorney needs to sign a statement that it won’t be an undue hardship on you, with some attorneys that equates to a virtual guarantee of your performance. I make it clear to my clients, that if I signed this, I can’t make any guarantees about things that will happen in the future; I am only signing off, because in my opinion, you have convinced me that you’re going to be able to make payments at this time.
So if you have one of those creditors, we might want to talk about reaffirming, otherwise you probably don’t need to.