Should I reaffirm on my house or car loan?




What does it mean to reaffirm on a loan in a bankruptcy?  Reaffirmation is a process whereby you agree to continue paying on the loan after the bankruptcy and you remain liable on the debt.  Due to the significant risk involved in reaffirming, it is rare that a qualified bankruptcy attorney will recommend reaffirming on a loan.  Certainly reaffirming on an unsecured loan is a bad idea and is almost never done.  Reaffirming on automobile and home loans is also not often wise.  In fact, many experienced bankruptcy attorneys in the Minneapolis area will recommend that you not reaffirm on your car and home loans.  The risk is that if you can no longer make payments after the bankruptcy you will be held accountable on the loan.  Even after the foreclosure or repossession of your home or car, you could be held liable on a deficiency balance on the loan (the amount left on the loan after the collateral has been sold at auction).  In sum the risk of reaffirming is that you could be liable on a loan after the asset associated with the loan provides no value to you.

A loan cannot be reaffirmed without court approval, so the process of reaffirming on the loan may increase the cost of your bankruptcy.  A reaffirmation agreement must be processed and sometimes a court appearance is required so the cost of reaffirming on your car or home loan should be  considered as well.

On the other hand, there are a few advantages of reaffirming. 

Keeping the asset (reaffirmation sometimes but not always required).  First, if you do not reaffirm on a car loan, the creditor may chose to immediately repossess your car even if you are current on the payments.  While this may be the case for some lenders, most lenders will allow you to continue making payments without reaffirming on the debt and will release the title when the car is completely paid for.

Rebuilding your credit. However almost all of the creditors will not report positive payments to the credit reporting agencies unless you reaffirm on the debt, nor will they send you regular statements.   Some clients have also had difficulty in refinancing their mortgage loans and obtaining loan modifications without a formal reaffirmation agreement having been filed with the court.  Although the risk of reaffirming on the mortgage loan may be remote, the consequences could be severe if the lender pursued other than the traditional foreclosure remedies.  For these reasons, it is very important to consult with an attorney in order to evaluate the risk in your individual situation.  Following are a few things you may wish to consider in preparation for your attorney consultation:

  • Are you behind on the loans, or are you having difficulty making regular payments?
  • Is your income likely to increase or decrease?
  • Is there any equity in the asset securing the loan?
  • What is the interest rate and terms on the loan?
  • What is the condition of the asset?  Is it in need of maintenance?

These are very important questions to ask yourself, as they can determine what your move needs to be.

To Reaffirm Or Not To Reaffirm

If you are behind on the loans, it is very likely that reaffirmation is not a good option for you. A full consultation with Minnesota bankruptcy lawyer who can review your financial resources and help you realistically your options.

Keep in mind that reaffirmation is a process that is unique to Chapter 7 bankruptcy.  If you are filing a chapter 13 bankruptcy, your car and home loans can be treated in your plan.  If you are behind on house or car payments it is possible to restructure those loans in various ways through your bankruptcy case.  Finding the best solution requires expert advice from an experienced attorney.

Contact A Minneapolis Bankruptcy Lawyer

Reaffirming on your house or car loan means renewing your promise to pay on a loan and usually on a loan securing a home or car.  However, reaffirming is rarely required in order to keep the asset.  If you wish to file bankruptcy and reaffirm on some of your debts, you will want to discuss this with your bankruptcy attorney. To find out more about how the McKinney Law Office can help you, call the Minneapolis office at 612-206-3706 or the St. Paul office at 651-379-4110 for a free consultation.

This law firm is a debt relief agency, and we help people file for bankruptcy relief under the United States Bankruptcy Law.