Property to be redeemed/Debt Reaffirmed

[frglvr73]

What is the name of your state? NE

I have filed for Chpt 7. My court date is in the middle of May. I am pretty well confused about the matter regarding my car. I was told that I could keep it, but when I have tried to contact the holder of the loan to pay my monthly bill, I get transferred to 'the person handling my case' and only get their voice mail. In the papers it says that this property will be redeemed pursuant to 722, and debt reaffirmed pursuant to 524. What does this all mean? I am now a week late on the payment. Advice, please! Thanks!

 

[AttorneyOney]

Hmm. Redemption and reaffirmation are two different things, so your petition should not have said you were going to do both. Redemption means paying the lender the value of the car, which is usually less than the payoff amount for the loan. Reaffirmation means making a new promise to pay the loan according to its original terms. Reaffirmation is generally a bad idea, which is why your attorney (or the judge) has to approve it and why you're given express rights to rescind the reaffirmation agreement within a fairly liberal time period.

You have 45 days after filing your statement of intention in order to actually carry it out. If you were my client (but, of course, you're not -- so you need to ask your own attorney) I would say that, if you're reaffirming, you should keep making payments but that, if you're redeeming, you should stop making payments because they're simply reducing the amount of an unsecured debt that's going to be discharged.

 

[frglvr73]

Thanks! After looking at the papers again, there is an X under reaffirmation. Do I need to do anything or is this 'automatic'? I plan on calling my attorney Monday to get some answers from him. Just got really worried after I couldn't get someone at the lender to take my car payment over the phone and just transferred to voice mail. Why is reaffirmation so bad?

 

[AttorneyOney]

You'll need to ask your attorney what he thinks. He must sign off on any reaffirmation agreement after weighing whether it's in your best interests or not.

Your discharge will eventually eliminate your personal obligation to the car lender, but it won't eliminate the lender's lien on the car. Section 722 allows you to pay the lender the value of his collateral to eliminate his lien on the car. The lender then particpates pro-rata with all other non-priority unsecured creditors to the extent his claim exceeds that value.

The reason reaffirmations are usually a bad idea is that you don't usually get equivalent consideration for agreeing to pay in full a debt that would otherwise be discharged. I mean, why file for bankruptcy and then agree to pay off your creditors anyway? For example, auto loans are generally "upside down" in that the value of the car is usually less (sometimes MUCH less) than the payoff amount for the loan. So why agree to pay another $10,000 on a loan secured by a $4,000 car?

BTW, reaffirmation is not automatic. You will need to sign an agreement. In my district, there is a prescribed form for it. Regardless of whether there's a specific form, the Code requires certain disclosures aimed at reminding you what a bad idea reaffirmations usually are. Your attorney will explain all of this to you, too.