By: Daniel Stone
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Should I sign a bankruptcy reaffirmation agreement?
I am not going to recommend on my blog on rather you should sign a reaffirmation agreement because each case has its own specific facts. Please note that my recommendations are for South Carolina only and you should consult your own bankruptcy attorney before making a decision. That being said, let me give you the pros and cons of signing a reaffirmation agreement. First for the positive factors for signing reaffirmation agreements on homes. The only benefit I see for reaffirmation agreements on homes is that mortgage lenders will not restart sending positive credit information to the credit bureaus unless you sign it. Please note that if you are current on your mortgage, our Courts have stated in opinions that you can keep your home as long as you are current.For mobile homes, I see almost no benefit unless you are a few months in the arrears and the lender agrees to put those arrears at the end of your mortgage if you agree to sign the reaffirmation. For cars, the benefit is that the car lender will not repossess your car if you sign it. In South Carolina, there is a difference in opinion among many bankruptcy attorneys on if car lenders can repossess a car if a debtor is current on the loan but refuses to sign a reaffirmation agreement. For other collateral such as household items, I rarely advise signing a reaffirmation agreement because there are usually other better options such as filing a motion to redeem. Finally, our judges in the South Carolina bankruptcy courts have stated that the creditors cannot repossess or foreclose on a property in a case where a reaffirmation agreement has been submitted to the Court but was ultimately denied as long as the Debtor remains current.
Now for the negative factors: First, if you sign the reaffirmation agreement, you are bound to the terms of the agreement even though the Chapter 7 bankruptcy originally protected you. So say for instance, you owe $20K on a car worth $10K and you sign the reaffirmation agreement and the car is totalled after the case is discharged. While you wouldn’t have had to pay for any deficiency if you wouldn’t have signed the reaffirmation agreement, you would be responsible under the terms of reaffirmation agreement. This is why for most car loans, I shy away from recommending to my clients that they sign it. Second, for home loans, our Courts have stated you do not have to sign the reaffirmation agreement to retain the home as long as your remain current. For cars, there is still the possibility of a repossession even if you are current and refuse to sign the reaffirmation agreement. However, as I stated in the first paragraph, many bankruptcy attorneys interpret the South Carolina Consumer Code as offering protections to consumers who are current on their car loans – irregardless of the bankruptcy filing. As of today, I haven’t had any of my clients or any other Debtors that I know of lose a car when they refused to sign a reaffirmation agreement when they were current on the loan. Finally, I would like to stress to potential bankruptcy filers that it is my opinion to not sign reaffirmation agreements on personal loans or small loans with household items as collateral. Please see the Chapter 7 bankruptcy filing in the big picture. You are trying to get away from the stress and burden of debts. If you are reaffirming debts, the bankruptcy becomes less and less of a cure for your debt issues. Additionally, there are other avenues to fix these small loans so they want come and get the collateral if you are behind on payments such as Motions to Redeem and negotiating with the creditor.