A reaffirmation agreement is a legal contract that allows you to keep your vehicle during a bankruptcy case. If you sign a reaffirmation agreement, you are agreeing to continue making payments on the vehicle loan, even though you have filed for bankruptcy. This means that you will be personally liable for the debt, and the vehicle can be repossessed if you fail to make payments.
When you file for bankruptcy, the court will issue an order that automatically stays, or stops, any collection efforts by your creditors. This includes repossession of your vehicle. However, the stay is only temporary, and if you want to keep your vehicle, you will need to take action.
One option is to redeem the vehicle, which means that you pay the fair market value of the vehicle in full to the lender. However, this can be a significant cost, and many people are not able to afford it.
Another option is to reaffirm the debt, which means that you agree to continue making payments on the vehicle loan as if you had never filed for bankruptcy. By signing a reaffirmation agreement, you are giving up the protections of the automatic stay and making yourself liable for the debt again.
Before signing a reaffirmation agreement, it’s important to consider the cost of the vehicle, your income, and the terms of the loan. If the value of the vehicle is less than the remaining balance on the loan, it may not make sense to reaffirm the debt. If you are struggling to make payments, it may be better to return the vehicle to the lender and look for a more affordable option.
It’s also important to consider the terms of the loan. If the loan has a high interest rate or unfavorable terms, it may not be worth reaffirming the debt. It’s a good idea to talk to a bankruptcy attorney before making a decision, as they can help you evaluate your options and make a decision that is in your best interest.
If you decide to reaffirm the debt, the lender will typically require you to provide proof of income and expenses, as well as a statement of your assets and liabilities. The lender will also want to know that you have insurance on the vehicle, as this is a condition of the loan.
Once you have signed the reaffirmation agreement, it will be filed with the bankruptcy court, and the court will hold a hearing to determine if the agreement is in your best interest. The court will consider whether the agreement is fair and reasonable, and whether you have the ability to make the payments.
If the court approves the agreement, it will be binding, and you will be responsible for making payments on the loan as agreed. If you fail to make payments, the lender can repossess the vehicle. If you default on the loan, it will also likely be reported to the credit bureaus and can negatively impact your credit score.
It’s important to note that if you are in a Chapter 7 bankruptcy, the court may not approve a reaffirmation agreement if the vehicle is worth less than the outstanding balance on the loan, as the court may consider it an unnecessary burden on the debtor. In this case, it would be better to return the vehicle to the lender and look for a more affordable option.
In summary, a reaffirmation agreement is a legal contract that allows you to keep your vehicle during a bankruptcy case. By signing a reaffirmation agreement, you are agreeing to continue making payments on the vehicle loan, even though you have filed for bankruptcy, and the vehicle can be repossessed if you fail to make payments. It’s important to consider the cost of the vehicle, your income, and the terms of the loan before signing a reaffirmation agreement and to consult a local Prattville bankruptcy attorney.
