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Reaffirmation Agreements: To Do Them Or Not To Do Them

If you are in a bankruptcy case your attorney has likely talked to you about reaffirmation agreements.

If you aren’t in a bankruptcy case yet but a lawyer has mentioned reaffirmation agreements to you on a phone consultation you may be wondering what the heck they are.

Here is the for non-attorney’s version of what a reaffirmation agreement is and how they work.

A reaffirmation agreement is an agreement with a creditor to pay a debt after a bankruptcy case filing.  The place you will see these most often is on car loans and mortgages (depending on the state you are in).  You are basically saying to the creditor, “I need this car to get to work and I agree to pay this bill on an ongoing basis even though I have filed a bankruptcy case.”

This agreement will be submitted to the court by your creditor and the Judge will decide whether to approve or deny the agreement.

Here is where the reaffirmation thing gets tricky.  In New Jersey there is no pass through for car loans, that means that if you don’t file the reaffirmation agreement the creditor could theoretically come take the car.  However, this does not mean that a filed reaffirmation agreement must be “approved” in order to keep the car.

In New Jersey, if the Judge approves your reaffirmation agreement, you keep the car and pay for your car.  However, if the agreement is approved and you should someday default on the car you will be liable for the debt.  If the reaffirmation agreement is denied, you keep your car and you pay your car but you will not have that liability in the event you can’t pay your car sometime down the road.   Either way, if you pay for the car, you keep the car and that is a good thing for you.

Reaffirming a mortgage….not on my watch.

I cannot count the number of times, my client has called and said the mortgage company told me if I want credit for my payments I have to reaffirm my mortgage.

Will I do this?

NO!

Here is why:  The whole point of a bankruptcy is to give you a fresh start.  How does re-obligating you on your 200,000+ mortgage balance do that?  As long as you make your mortgage payment, you keep your home, your mortgage will simply pass through your case.  In 30 years, when it is paid off you will get clear title.   There is no good reason for you to reaffirm that debt. (Judges in New Jersey agree and generally do not approve mortgage reaffirmations so that should tell you something about them as well.)

The only entity receiving a benefit from you reaffirming your mortgage is the mortgage company and I am not in the business of helping them, I am in the business of helping you.

There are many ways to rebuild your credit, don’t let the mortgage company convince you they are the only way.  They aren’t.

Have more questions about how to handle your car loans and mortgage in a bankruptcy case?  Give us a call at 732-302-9600 or fill out our online consultation form and we will call you!