Yes, it’s a requirement of the Bankruptcy Code. If you want to keep your car loan, you’ll need to agree to reaffirm that particular debt. Even though you’re going to receive a discharge of your debts in Chapter 7, if you fail to make car loan payments then the secured creditor holding that reaffirmed debt can still get a judgment against you and can seize wages and bank accounts.
Most bankruptcy courts don’t favor reaffirmation agreements because such agreements tend to defeat the very purpose of the Bankruptcy Code. The Bankruptcy Code is intended to give debtors a fresh start if they’ve fallen into financial difficulties. Frequently in these cases, the debtor will honorably do what the debtor is supposed to do; that is, the debtor signs a reaffirmation agreement that’s been prepared by, for example, the car lender. The Bankruptcy Court will hold a hearing which requires that the debtor and the debtor’s attorney appear in court. The bankruptcy judge may explain to the debtor that the reaffirmation agreement would create an undue hardship on the debtor if the debtor’s schedules show a monthly income that is less than their monthly expenses. In such a situation, the Bankruptcy Court will refuse to approve the reaffirmation agreement.
Why doesn’t this create a problem for the debtor? It doesn’t, because the debtor has done everything that they were supposed to do under the Bankruptcy Code. The order that the Bankruptcy Court would enter provides that as long as the debtor is making payments on the car, the secured creditor can’t seize or repossess that car.
If you have a question about how the reaffirmation process works, please pick up the phone and call 410-484-9000.
