Let Sleeping Dogs (or Creditors) Lie in Chapter 7 Bankruptcy Cases

It is a pervasive misconception among debtors in Chapter 7 bankruptcy cases that the debtor has a duty to enter a new contract with secured creditors in order to retain their vehicles, their home, or other household goods. These contracts are called reaffirmation agreements and in reality they are not necessary in most cases.

At its core, a reaffirmation agreement restates the payment terms on the debt and makes the debtor liable again for the deficiency upon default. This exception from discharge contradicts the intended ‘fresh start’ that the bankruptcy discharge gives to the debtor; this is precisely why these agreements are disfavored by the bankruptcy courts. Bankruptcy judges enforce strict standards for approval of these agreements and absolutely will not approve the agreement unless the judge determines that reaffirmation is in the debtor’s best interests.

By default, the debtor has much preferred the alternative to simply continue to make payments to the creditor and keep their property in what is commonly referred to as a ‘ride-through.’ There is no paperwork to file and no need to get court permission, just keep making the payments and eventually you will get that lien released. If there is a default sometime down the road, no worries; the discharge prevents any recourse!

I recommend that you enjoy the full benefits of your discharge and that you do not request a reaffirmation on your debts. If you are still worried about the status of the debt, then make sure you have the correct payment address and that the creditor is receiving the payments. That is the full extent of your duties.

If you have questions about reaffirmation agreements or the discharge of debts in Chapter 7 cases, schedule your free consultation by calling (480) 888-7111 or submitting a web request here.

By: Levi S. Hatch