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FAQs about reaffirming a debt in a Florida Chapter 7 bankruptcy

Lenders may reaffirm loans rather than repossess property in Chapter 7 bankruptcy. However, this agreement could cause financial trouble for bankruptcy filers later.

The potential for loss of home and vehicle may have prevented debtors from seeking bankruptcy relief thus far, especially if Chapter 13, with its mandatory repayment plan, will not work for their level of income. However, debtors may believe they will be sufficiently solvent after the bankruptcy that they could continue paying a mortgage and car payment. If so, they may want to consider signing a reaffirmation agreement with their lenders.

What is a reaffirmation agreement?

The U.S. Bankruptcy Court for the Southern District of Florida explains that a reaffirmation agreement involves a promise on the debtor’s part to continue to be liable for all or a portion of the debt after filing Chapter 7 bankruptcy. On the other side of the agreement, the creditor issues a promise not to repossess the property as long as the debtor stays current on the payments.

How do I obtain a reaffirmation agreement?

In most cases, this agreement is strictly between the debtor and the lender, although there is documentation to file with the court. As long as there are no issues with the agreement, it does not require a hearing. However, if the debtor does not have an attorney, the court requires a hearing to ensure that he or she understands what the agreement entails.

The only other time the courts get involved is if the agreement indicates that the debtor’s expenses with the loan payments are more than his or her income. The judge will require a hearing during which the debtor would need to show evidence of being able to make the payments.

Do the terms of the loan stay the same?

The debtor and lender are reaffirming the debt, but that does not mean things will go on at the same rate, particularly if the debtor is behind or owes interest and penalties. The agreement form that the U.S. Bankruptcy Court provides requires information such as the amount reaffirmed, the annual percentage rate, the repayment terms, the collateral and any changes to the credit terms on the debt.

What happens if I cannot keep up with the payments?

Debtors already understand the stress of being unable to pay their bills. Bankruptcy provides relief, but if they cannot pay a reaffirmed debt, they will not be able to file again for seven years. The creditor could repossess the property and sell it, then garnish the debtor’s wages until these have covered the difference between the loan balance and the sale price.

Even if reaffirming a mortgage or vehicle loan is a viable option, that does not make it the right one. One of the best ways for a debtor to understand their legal options when it comes to bankruptcy is to talk to an experienced Miami bankruptcy attorney and see what protections they may be able to secure through the bankruptcy process. At our law firm, we work with those who are facing debt challenges regain financial stability, making sure that our clients have the information they need to make good decisions when it comes to their overall financial situation.

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