What Is Debt Reaffirmation in Bankruptcy in New York?

When you agree to debt reaffirmation in bankruptcy you are promising to repay a loan that would have otherwise been discharged in the bankruptcy process.   Since the purpose of bankruptcy is to provide you with financial relief by eliminating your debts entirely, as a general rule we will not recommend reaffirming loans to our clients in New York.   It defeats the purpose and can hamper your bankruptcy discharge significantly.

While bankruptcy will provide you with a second chance and a fresh start financially, most people are not overjoyed at the prospect of filing.   They want to minimize the negative effects of bankruptcy by doing the best they can to satisfy the people they owe money to even though they are in desperate need of financial relief and really can’t afford to do so.  We find that most people have an eagerness to do what they think is the right thing by paying off as much of their debt as they can.  Because of this, it can be tempting for consumers to want to reaffirm loans just to save face with their lenders.  It’s understandable but usually not in your best financial interests which is what your bankruptcy attorney is committed to.

Reaffirmation agreements are most commonly associated with automobile loans.  With car loans declaring bankruptcy will be considered a default on your loan even if you are current on your payments.  The bankruptcy clause in almost every auto loan agreement gives the lender the power to repossess your car even if you are making your regular payments.  However, even though the law gives the lender this power, if you are current on your payments it makes more sense for the lender to continue to accept your money than to repossess your car.   Most auto financing companies are not in a rush to pay for repossession if you are making the payments.  However, there is no guarantee, and the fear of having a vehicle repossessed can be serious motivation to agree to a reaffirmation of a car loan for many consumers.

Although a lender might possibly, with court permission, have the power to take your car back regardless of your payment history, the chances are they won’t even if you don’t sign their reaffirmation agreement.  Signing this agreement makes you liable for the loan that would have otherwise been eliminated in your bankruptcy discharge.  If you reaffirm and fail to make your payments you will owe the balance of the loan and have your car taken as well.   On the other hand if you do not sign a reaffirmation and fail to continue to make your payments you will not owe on the vehicle.  It will simply be taken and the loan balance will be forgiven through your bankruptcy discharge.

In the Second Circuit (including New York) there is a “ride-through” provision in the law.  The idea is that as long as you sign the reaffirmation agreement, even if a judge at a hearing denies the reaffirmation you still keep your car as if you never attempted to reaffirm the car.  My gut says there is still litigation to come from this area of law but that is how it is currently working out.

Home loans are looked at differently than car loans in bankruptcy law.  While your car could potentially be taken if you file for bankruptcy even if you are current on your loan, the same is not true for your home.  If you file bankruptcy and are making your mortgage payments your mortgage lender cannot foreclose on you simply because you filed bankruptcy.   In light of this it is almost never wise for our clients to reaffirm a mortgage loan going into their bankruptcy.

Debt collectors and loan providers have become quite skilled in convincing people that they should be reaffirming their debts in bankruptcy.  It’s important to get the facts about your situation from an expert that has your best interests at heart, not the interests of a megabank or toxic loan provider.  You’ll find that bankruptcy will give you much more power and leverage than your financers would have you believe.

If you live in New York, get the facts about reaffirming your debts in bankruptcy and how it will affect your ability to keep your car and stay in your home from the Law Offices of William Waldner.  We will help eliminate your toxic debts and can save your home and car in bankruptcy without your having to enter any dangerous reaffirmation agreements.  Arrange a free consultation online or by calling 212-244-2882.  We are a boutique law firm that offers affordable debt relief assistance for all New Yorkers and maintain a 99% Chapter 7 bankruptcy discharge record in New York as of 8/31/16.

This article is intended for educational purposes only.  By reading this article no attorney-client relationship has been created.