One of the most time-consuming and frustrating things a bankruptcy attorney has to deal with is a reaffirmation agreement. A reaffirmation agreement is a contract between the debtor filing bankruptcy and their creditor to keep a secured piece of property outside of the filing. Many individuals filing for bankruptcy have a once-in-a-lifetime opportunity to become debt-free and start all over. With this in mind, many attorneys feel the debtors should not hang on so tightly to their belongings and take advantage of the total power that a bankruptcy filing would give them.
It's very common for debtors that are filing bankruptcy to call their bankruptcy attorney after the discharge and ask what they can do to get out of their car loan, mortgage or other secured debt. It might be something changed financially in their family like losing a job or a reduction in pay that makes them no longer able to be able to afford the payment. This is exactly why the bankruptcy attorney had this conversation with the debtor during the filing. Most attorneys encourage debtors to give back anything that might be questionable. The time to relinquish property is prior to the discharge in Chapter 7 bankruptcy. When an individual surrenders the property in the bankruptcy, they will be free and clear from all future liability in regards to that property. If the debtor after bankruptcy decides to surrender their home to foreclosure or get their car repossessed the creditor can go after the debtor for any deficiency plus all legal fees. There is nothing a debtor can do to get away from it. It's like putting a final nail in the debtor's coffin.
Most bankruptcy courts require a reaffirmation agreement on all debtors that are seeking to reaffirm a debt. This agreement basically takes away the fresh start that Congress intended when creating the bankruptcy laws. Making the debtor liable for a loan after their bankruptcy seems counterproductive.
The reason this is a touchy subject for a bankruptcy attorney is because, first of all, most Americans are in love with their cars and their stuff. For a debtor to give something back, even though they can't afford it, is a sign of failure to them. Creditors know the emotional side effects of how people feel about their stuff and they use that to get people filing bankruptcy to sign these agreements.
The creditor has a list of requirements to make a reaffirmation agreement legal. First of all, it has to be enforceable under consumer law. Next, it has to be signed and completed prior to the bankruptcy discharge. The creditor is required to notify the debtor in their bankruptcy attorney that they are not required by law to enter into this agreement and state that it is totally voluntary. Before a debtor enters into a reaffirmation agreement the creditor must make sure that they have enough money to afford it, with approval from the bankruptcy court. And the last thing is, the agreement must be in the debtor's best interest.
Under bankruptcy law the debtor should have 60 days to resend the agreement prior to the bankruptcy discharge. When filing bankruptcy a debtor really needs to do some soul-searching, deciding on what's really important in life. Trying to hang on to stuff sometimes will end up in failure. Always use the expertise of a bankruptcy attorney as this is not their first picnic.
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