Your Car Doesn’t Have to Be Lost: Understanding Reaffirmation Agreements in Long Island Chapter 7 Bankruptcy

When facing financial hardship on Long Island, many individuals worry that filing for Chapter 7 bankruptcy means losing their vehicle. However, you can prevent losing the secured property by signing a reaffirmation agreement. This legal tool allows debtors to keep their cars during bankruptcy proceedings, though it requires careful consideration of the benefits and risks involved.

What Is a Reaffirmation Agreement?

A reaffirmation agreement is an agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession. It’s a contract between you (the debtor) and your creditor. You’re promising to continue paying off a specific debt, even after your other debts are discharged through the Chapter 7 process. You get to keep the property connected to that debt.

Importantly, reaffirmations are voluntary, are not required by law, and no creditor can make you reaffirm a debt. This voluntary nature is crucial for Long Island residents to understand when making decisions about their financial future.

How Reaffirmation Agreements Work in Practice

When you indicate that you want to reaffirm your loan on the Statement of Intention for Individuals Filing Under Chapter 7 (“SOFA”) bankruptcy form, the lender will send you a reaffirmation agreement with the original loan terms. You and the lender enter into a new contract—usually on the same terms—and submit it to the bankruptcy court.

For Long Island residents working with a qualified chapter 7 attorney, the process involves careful evaluation of whether reaffirmation serves your best interests. A reaffirmation agreement must be filed within 60 days after the first date set for the §341(a) meeting of creditors. The agreement must have a cover sheet prepared as prescribed by Form 427.

Benefits of Reaffirming Your Car Loan

There are several advantages to entering a reaffirmation agreement for your vehicle:

• Reaffirmation provides a sure way to keep collateral as long as you abide by the terms of the reaffirmation agreement and keep up your payments. If you stay current on the payment, the lender won’t be able to take back the property.
• You secure your interest rate and payment, which can be beneficial in today’s lending environment.
• The payments will help you rebuild your credit after bankruptcy.
• Reaffirmation also provides an opportunity to negotiate new terms to reduce your payments, your interest rate, or the total amount you will have to pay over time.

Important Risks to Consider

While reaffirmation can help you keep your car, it comes with significant risks that Long Island residents must carefully weigh:

When you sign a reaffirmation agreement, you give up the protection of the bankruptcy discharge for that debt. This means because reaffirmation leaves you personally liable for the debt, you can’t walk away from the debt after bankruptcy. You’ll still be legally bound to pay the deficiency balance even if the property is damaged or destroyed.

If you miss payments and the lender repossesses the car, you’ll be liable for any deficiency balance remaining after the lender sells it at auction. Additionally, because you have to wait eight years before filing another Chapter 7 bankruptcy case, you’ll be stuck with that debt for a long time.

Court Approval and Protection Measures

The Court also reviews the terms of the reaffirmation and determines if entering into the reaffirmation is in your best interest. The Court is concerned that you do not take on debts you cannot handle coming out of bankruptcy. In the event that this statement reflects an insufficient income to allow payment of the reaffirmed debt, §524(m) provides that a presumption of undue hardship arises, allowing the court to disapprove the reaffirmation agreement, but only after a hearing conducted prior to the entry of discharge.

Fortunately, debtors have protection through the right to cancel (rescind) any reaffirmation agreement prior to the entry of your discharge or within 60 days after the reaffirmation agreement is filed with the Court, whichever occurs later. To rescind a reaffirmation agreement, you must timely mail a written notice to the creditor stating that you are withdrawing your decision to reaffirm and revoking the agreement.

Alternatives to Reaffirmation

Long Island debtors should know they have alternatives to reaffirmation. Most lenders want your money, not the car, and will let you keep the car after Chapter 7 if you keep paying and stay current. The benefit of paying without a contract is if the vehicle is damaged, breaks down, or you don’t want it anymore, you can give it back and walk away. However, the lender can take back the vehicle at any time.

For those behind on payments, Chapter 13 bankruptcy provides a better solution because you can bring current arrears over three to five years.

Professional Guidance for Long Island Residents

The Law Office of Ronald D. Weiss, P.C., serving Long Island since 1993, understands the complexities facing Nassau and Suffolk County residents dealing with financial hardship. The Law Offices of Ronald D. Weiss, PC have been supplying expert bankruptcy, foreclosure defense, and debt negotiation services since 1993. We offer practical, compassionate solutions customized to each client’s financial situation.

With over 30 legal professionals on our team and locations in Melville, New York location with an address of Law Office of Ronald D. Weiss, P.C., 445 Broadhollow Road, Suite CL-10, Melville, New York 11747, the firm provides comprehensive bankruptcy services throughout Long Island.

Making the Right Decision

Deciding whether to enter a reaffirmation agreement requires careful analysis of your specific situation. Reaffirmation might be the only practical way to keep some property types, such as automobiles or your home. Also, reaffirmation can be a sensible way to keep property that is worth significantly more than what you owe on it.

However, you probably still do not want to reaffirm debt on a depreciating asset like a car and then be liable for that debt even if it breaks down or you find you can’t keep up with the payments. However, in some limited circumstances (like for a vehicle in which you have equity), it might make sense.

The best way to approach the issue is to seek a free consultation. Our office offers a free consultation by phone or in person at our Melville, Long Island law office, and we can certainly review with you your options and whether a bankruptcy case is the best way to proceed.

Understanding reaffirmation agreements is crucial for Long Island residents considering Chapter 7 bankruptcy. While these agreements can help you keep your car, they require careful consideration of the long-term financial implications. Working with experienced bankruptcy counsel ensures you make informed decisions that support your path to financial recovery.