The goal of bankruptcy is normally to have as much disposable debt eliminated as legally permissible. Despite this overall objective, it is occasionally desirable to reaffirm a debt so that a debtor can keep an asset secured by the debt. A financed vehicle, which may be the only form of family transportation, is a common example of an asset that a family may wish to keep despite the attending financial obligation. Often the creditor will agree to allow the debtor to maintain possession and use of the asset if the debtor executes a reaffirmation agreement and makes the payments agreed to in the reaffirmation agreement. While may debtors are initially hesitant to surrender certain assets, the decision to execute a reaffirmation agreement can have significant long-term consequences so anyone considering bankruptcy should seek legal advice from an experienced Olathe bankruptcy attorney before deciding to reaffirm any particular debt.
Reaffirmation of a debt is most common when the asset is a vehicle that is for personal use by a family or a business vehicle which is financed with a personal guarantee. Few families can function without some mode of transportation and obtaining another car immediately following a bankruptcy can be difficult because of limited financial resources and potential credit issues. If a person reaffirms a debt and realizes later that he or she cannot keep up with the payments, the debtor may not only lose the vehicle but also be subject to a deficiency judgment. A person must wait eight years before filing for Chapter 7 relief after obtaining a prior Chapter 7 bankruptcy discharge. If a person reaffirms a secured debt but is unable to make the payments, the vehicle can be repossessed. Since the debtor cannot file another Chapter 7, the vehicle finance company may obtain a deficiency judgement for the difference between the value of the vehicle and what was owed. If the debtor cannot work out an accommodation with the finance company, he or she may face a wage assignment or bank levy.
Another consideration before signing a reaffirmation agreement is that most financed vehicles will be upside down (i.e. more will be owed than the vehicle is worth). If the vehicle is worth significantly less than is owed, it may not make economic sense to reaffirm the obligation. The bankruptcy trustee will also carefully scrutinize a reaffirmation agreement to ensure that it does not create an unreasonable financial burden on the debtor and the debtor’s family or constitute an unfair transaction. An experienced bankruptcy attorney can carefully scrutinize a potential reaffirmation agreement and advise you regarding the advantages and disadvantages of reaffirming the debt as well as the fairness of the specific terms of the reaffirmation agreement.
We are pleased to handle bankruptcy cases throughout Johnson County and surrounding counties in the Kansas City metropolitan area. Weekend and evening appointments are available. To reach our Olathe bankruptcy attorney Weston Moore, call 913-782-7075, or contact us online.
Weston R. Moore, Attorney at Law
13401 South Mur-Len Road
Olathe, KS 66062
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