Over the years, the bankruptcy code has taken on a new complexity that makes it almost imperative that an individual has the help of a bankruptcy attorney to file. It is true, that it is one’s legal right to represent yourself in a court of law and this includes filing bankruptcy. The major changes to the bankruptcy code came with the BAPCPA of 2005 that was intended to reduce the number of individuals filing for bankruptcy. These changes were directed at those filing Chapter 7 bankruptcy more than those filing Chapter 13. The idea was that Congress thought there were too many people abusing the bankruptcy system and they wanted to discourage those from using a bankruptcy filing to eliminate their debt. They believed that many Americans filing bankruptcy were capable of that lease paying back some of the debt. This is why they enacted the changes that made individuals filing Chapter 7 bankruptcy to qualify under a means test and if their income was too high they would be forced into a Chapter 13 bankruptcy.
One thing that hasn’t changed much is reaffirmation agreements with creditors. A reaffirmation agreement is a contract telling the creditor that the debtor would like to keep property secured by a loan. By signing a reaffirmation agreement, they will be able to keep the property through the bankruptcy filing and agree to continue paying for the property in full. These agreements are usually seen with automobile loans, auto leases, mortgages and sometimes furniture loans, where the furniture is the security for the loan.
When an individual is filing bankruptcy, this is the time to get out of any contracts that might be bad. In today’s society, just about everyone needs a car to get to work and pick the kids up from school. Also in today’s society many people are upside down on their vehicle loans. Many car dealerships let people buy a car with no down payment. Once the car rolls off the lot to the person probably lost 25% of equity of the vehicle. In essence, now they owe more on the car than what it is worth. Most of the time, a bankruptcy attorney will tell their client that this might be a good time to bail out and surrender the vehicle back to the lender. In many situations, signing the reaffirmation agreement might be signing the person’s life away. What happens if six months after the bankruptcy discharge the person loses their job and can no longer afford that car payment? Since they signed a reaffirmation agreement during the bankruptcy filing, they are responsible to pay the loan in full. There is no way out and if they default, the creditor can unleash their full wrath of legal power against the debtor. If they repossess the vehicle and it goes to auction, the creditor will file a lawsuit for the deficiency of the loan and the cost of repossessing the vehicle. This will end up in the judgment and if the person is working a wage garnishment.
At the time of filing bankruptcy, it’s time to do some serious soul-searching and be truly honest with yourself of what you want for your future. Always consider what could happen in the future and what would happen if you agreed to terms of the contract that extended past the bankruptcy discharge. The person should discuss the matter with their bankruptcy attorney to look at all the alternatives. Sometimes a person can buy their car out of the bankruptcy filing at a reduced amount, because in most cases, creditors don’t want the car back. If someone is filing bankruptcy to get out of financial trouble and set their sights on becoming debt-free, they should consider the ramifications of signing a reaffirmation agreement