Chances are that if you have a car loan and filed bankruptcy under Chapter 7 of the bankruptcy code, you’re going to get what is called a reaffirmation agreement. If you’re a pro se debtor representing yourself, you have no one to ask questions of. If you’re represented by an attorney, your questions may still remain unanswered and you may receive little to no help. This is the range I’ve seen when I volunteer as reaffirmation counsel for Public Counsel at our Central District’s reaffirmation clinics.
Gregory M. Duhl, Associate Professor of Law at William Mitchell College of Law in Minnesota wrote in depth on the attorney’s role in reaffirmation agreements and I encourage those of you that desire a more in depth look at this topic to read his law journal article, “Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations. ” Here’s the point: If the attorney signs off on your reaffirmation agreement, the attorney is basically agreeing that the contract is in your best interest and that debt should survive your bankruptcy. What this essentially means is that you remain liable for that debt after your bankruptcy discharge. So, if at some later point in time, you can’t keep up with your car payments and you surrender the vehicle, you’ll be responsible for any deficit you may owe. This makes the reaffirmation a bad idea for those who are upside down on any debt obligation where a reaffirmation agreement is being offered.
On the other hand, if you’ve done everything you’re obligated to do under the law and have signed your agreement and mailed it back to the Creditor, without an attorney signing off on the agreement, the Court will set the matter for a hearing. The reason for this is that the Judge takes the place of your attorney and must decide whether this agreement is in your best interest. Here in the Central District Los Angeles Division, all debtors are required to meet with a volunteer attorney prior to their hearing and we look at your individual situation and explain your options to you and the consequences of either outcome. Usually when you ask the Judge to deny your reaffirmation agreement, they will.
When the Judge denies a reaffirmation agreement, the debt remains under the protection of your bankruptcy case and the debt is discharged. However, under either outcome, the lien will always survive bankruptcy. What this all means is that if you want to keep that house, car, or boat that has a lien against it, you must continue to make the payments. The only difference here is that if that debt remains under the protection of the court and you later need to surrender it because you cannot afford the payments, you won’t be liable for any deficiencies after the surrender.