A Debtor in a Chapter 7 bankruptcy has three options with respect to personal property that is financed. 

The creditor that is owed on a note secured by the financed personal property is referred to as a “secured” creditor. The property securing the note is known as collateral.

The Debtor can: 1) surrender the collateral and discharge the personal indebtedness;

2) redeem the collateral, which means to pay the indebtedness off; or

3) reaffirm the indebtedness.

To reaffirm the indebtedness on the collateral the Debtor signs what is known as a reaffirmation agreement with the creditor.

When the Debtor reaffirms a debt they are agreeing to retain the collateral and keep making payments.  Most importantly though the Debtor is waiving their discharge if they sign a reaffirmation.

That means that the Debtor remains personally liable for the debt.

So, if the Debtor later defaults after signing a reaffirmation agreement they can be held liable for any deficiency after the sale of the collateral.

A deficiency arises where the collateral sells for less than is owed to the creditor.

Reaffirmation agreements are to be seriously considered before signing and you should consult a bankruptcy attorney before signing one.

The Reaffirmation Agreement can be negotiated to change the original terms of the repayment obligation, but generally the agreement does not alter the initial terms of repayment.

The Debtor is obligated to file what is known as a Statement of Intent within thirty (30) days of the filing of a petition under Chapter 7 or on or before the date of the meeting of creditors, whichever is earlier. (11 U.S.C. Section 521(a)(2)(A)).

The Debtor must choose one of the three options previously discussed: 1) surrender; 2) redeem; or 3) reaffirm. 

If the collateral securing the note is a vehicle the Debtor must redeem the collateral or sign a reaffirmation agreement within 45 day of the meeting of creditors. (11 U.S.C. Section 521(a)(6).

Failure to redeem or reaffirm within the 45 days causes the following to occur: 1) the automatic stay is terminated; 2) the property is no longer property of the estate; and 3) the creditor may take whatever action that would be allowed under non-bankruptcy law, including the use of a contractual provision providing for default upon the filing of bankruptcy, commonly known as an “ipso facto clause.”  (11 U.S.C. Section 362(h)).

So, even if you are current on payments and you have failed to abide by the requirements of filing a Statement of Intent or to carry out the expressed intent to redeem or reaffirm, then the creditor can repossess the vehicle and look to the Debtor for any deficiency.

As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation.  Bankruptcy, as many other areas of the law are very case or fact specific.  I pride myself on giving you the answers to your questions that are based on your individual circumstances.

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