My name is Ron Drescher. I’m an attorney practicing
bankruptcy and commercial litigation in Maryland, Delaware, Pennsylvania and Virginia and today
I want to answer the question, “Do I have to reaffirm my car loan in Chapter 7?” The
short answer to that question is yes, you do. That’s a requirement of the Bankruptcy
Code. That if you want to keep your car loan, you need to agree to reaffirm that debt. What
does that mean? It means that even though you are going to get a discharge of your debts.
In Chapter 7 if you fail to make your payments on your car and the secured creditor seizes
the car, repossesses the car or sells the car and you still owe money on it; if you
reaffirm that debt, that secured creditor can get a judgment on you, start garnishing
your wages and taking your bank accounts, even though you have gotten a discharge in
Chapter 7. That’s where the reaffirmation agreement is. Most bankruptcy courts don’t favor reaffirmation
agreements because they tend to defeat the very purpose of the Bankruptcy Code which
is to give debtors a fresh start if they’ve fallen into financial difficulties. So what
frequently happens in these bankruptcy cases is the debtor will do what the debtor is supposed
to do, which is sign a reaffirmation agreement that’s been prepared by the car lender. Then
the debtor’s lawyer will say I don’t want to sign this document because I think it’s
going to create an undue hardship on my client. Nevertheless the lender will almost always
file that reaffirmation agreement with the Bankruptcy Court. The Bankruptcy Court is
going to hold a hearing where the debtor and the debtor’s attorney have to show up. The
bankruptcy judge may likely explain to the debtor that if their schedules show that their
monthly income is less than their monthly expenses that the reaffirmation agreement
really is creating an undue hardship on the debtor and the Bankruptcy Court will refuse
to approve the reaffirmation agreement. But why doesn’t that create a problem for the
debtor. It’s because the debtor has done everything that they were supposed to do under the Bankruptcy
Code and the order that the Bankruptcy Court will enter will say as long as the debtor
is making payments on the car, the secured creditor can’t seize or repossess that car.
My name is Ron Drescher. I’m an attorney practicing bankruptcy and commercial litigation and if
you have a question about how the reaffirmation process works, please pick up the phone and
call. I would love to hear from you.