In Chapter 7 bankruptcy the creditors usually request a "reaffirmation agreement" (read more about reaffirmation click here) which is a new contract affirming the old contract.  Most of the time the same terms and condition applies.  This must be signed by you and the creditor, and then either approved by the bankruptcy judge or your attorney. Most of the time if the attorney approves it you will also have to sign a release that is not part of the bankruptcy.

Instead we give you the option of not signing a "reaffirmation agreement" and using what is called a "riding through".  What you do is to continue to make the payments and pay insurance and other terms in the prior contract. For most creditors, they don’t want your vehicle or car back (except Ford Motors who may want it back) so as long as you are current on the payments, insurance and other requirements on the contract that you are discharging, there is no reason for a creditor to file foreclosure on your house or to repossess your vehicle.  Currently and under the new bankruptcy laws, it is illegal for a home creditor to attempt any foreclosure for failing to reaffirm a debt.

What this gives you is an advantage of not signing the "reaffirmation” and what many call the best of both worlds.  However, you have to maintain payments and insurance on your home. Once it is paid off, the title goes into your name. If you lose your job or the real estate market takes another dump you can get rid of it by not making the payments.  You could live in the house maybe six to nine months without even making a payment.  If your house payment was $3,500 per month that would give you cash in the amount of $31,500 in nine months.  

By not reaffirming the debt you can always walk away from the asset for any reason in the future should something happen and buy a new home or car.  

For an example involving a car:  Let’s say in a year or two later your vehicle had major problems and you are still upside down [owe more than it is worth] and you decide that you no longer want it, all you have to do is to call the creditor to pick it up.  They have no recourse against you personally and only have recourse against the vehicle. The reason for this is that the Bankruptcy already discharged your personal liability and the only thing that remains is the lien.

However for cars, it is now getting a little more complex.  If you really want to make sure you will keep the vehicle you may want to consider signing a reaffirmation agreement.  This also applies to credit unions and certain creditors.

I will tell you what my opinion is but it is up to you to decide if you want to reaffirm the debt or not.  Currently there is a case involving Ford Credit Company where the court ruled that Ford could repossess the vehicle even when the client was totally current.  Many bankruptcy attorneys are hoping the United States Supreme Court hears this case.  Ford had repossessed a vehicle when the client was totally current.  Under the old laws, a creditor could not do this but the new bankruptcy laws of 2005 did not mention if they could or could not.  Ford believes this changed under the new laws and the appellate court so far has agreed with them. It may be up to the US Supreme Court to make the final determination.  

When you come into my law office I will discuss with you the general bankruptcy questions. After all of your information is imputed during our pre-bankruptcy review,  I will again discuss with you all of your bankruptcy options involving your house, cars and other vehicles.   After a pre-bankruptcy is finish you will be able to see how the court will treat all of your assets and debts.  This way there will be less surprises.

El Cajon, Stop Vehicles Repossessions, Chapter 13, Bankruptcy

Serving San Diego County

  David A. Casey, Bankruptcy Attorney, El Cajon, CA