Reaffirmation Agreements: Do they Make Sense?

Are you struggling with the decision on whether to sign that reaffirmation agreement the creditor wants you to sign? I’ve sen it all before. You want that shiny new truck instead of your three year-old Chevy Traverse. It is soooo much better of a vehicle, you tell yourself. The salesperson is telling you the same thing, or course. You decide to do it, and the Toyota dealership is more than happy to arrange for the financing. In order to make it all work, they say they’ll take your Traverse in trade. Unfortunately, when you get to the negotiating table, the sales manager comes in and tells you that the trade-in amount will be much less than you actually owe on the SUV. However, they have a solution. They’ll just roll all of the unpaid amount into your new loan on the 4Runner! Great! You’ll be able to get that new truck after all.

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However, when all is said and done, the new payment on the much more expensive vehicle is several hundred more than you were paying before, and the balance on the loan is way more than the 4Runner is worth. I see clients in this position often. I hate to admit it, but some version of this has happened to me in the past. In fact, I think it has probably happened to almost all of us, if you’ve been on this planet long enough. Fortunately, bankruptcy allows you to “break these chains” and get out of this vicious cycle. When in bankruptcy, I always advise folks to take full advantage. This is your shot at getting out of these types of deals that the car dealerships rope us into.

However, I also have many clients that do not want to give up their cars. This is understandable. This is your transportation; how you get to work, pick up your kids, run errands, etc. Believe me, I understand. The Bankruptcy Code allows a debtor to keep the collateral / secured assets in most cases as long as you can keep paying the secured loan payment. This is done usually by executing a Reaffirmation Agreement between you and the creditor. You are making an additional promise to continue making the payments until the loan is paid off, and this is usually done at the same terms as before (same payment, interest rate, etc.). You want to keep the car, even though it isn’t worth what the loan balance is. There are legitimate reasons why folks would decide to keep the car and continue to make payments.

Here are some of the reasons why you might want to keep the car and agree to a Reaffirmation Agreement:

  1. You have equity in the vehicle.
  2. The payment is affordable.
  3. The interest rate is low, much better than what you could get immediately after the bankruptcy.
  4. The vehicle is newer and under warranty – will mean reliability and low maintenance costs after the bankruptcy.
  5. The vehicle has special features that make it just right for you (large, room for large family, used for work, etc.).
  6. You will not have another car after the bankruptcy, and will not be able to acquire one without serious difficulty.

These are all pretty good reasons for keeping the vehicle and reaffirming it. If most of these reasons apply to you then that is even more of a reason to reaffirm. If only one of them applies, then maybe you should reconsider. These are tough decisions.

I’d be happy to help you work through it. Give us a call at Westward LAW PLLC – 360.899.5468 or –>

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