A Reaffirmation Agreement relates only to a Chapter 7 bankruptcy case. For more information about keeping property through bankruptcy, browse our sections about keeping real estate and personal property in Chapter 7 and keeping property in a Chapter 13 bankruptcy
In short, a Reaffirmation Agreement is a contract with the finance company that reaffirms the debt with the finance company, allowing the debtor to keep their car. If the finance company and the debtor enter into a Reaffirmation Agreement, the debt to the financing company is not discharged. This means that after the debtor receives a discharge in connection with all other debt, the debt with regard to the financing is not discharged. This means that in the event of any default in the future, the finance company may sue the debtor for the funds due, in addition to their right to repossess the automobile.
The NJ bankruptcy code requires that specific terms and conditions are included in the Reaffirmation Agreement. Also, the agreement must be approved the judge. The critical issue with regard to the Reaffirmation Agreement is that the bankruptcy judges must determine that the debtor’s monthly payment to the finance company does not represent an undue hardship. If the judge believes that the Reaffirmation Agreement required monthly payment presents an undue hardship, the judge will not approve the agreement. If the judge does not approve the Reaffirmation Agreement, the finance company will be permitted to repossess the automobile, pursuant to the NJ bankruptcy law.
Generally, a judge will base undue hardship on the debtor’s monthly available income to pay the financing, after net income and expenses. Typically, this means that the debtor’s bankruptcy schedules must reflect sufficient monthly excess income to make the financing payments. Additionally, the judge will look to the necessity of the vehicle and the monthly payment on the vehicle. The higher the monthly payment, the less likely she will approve the agreement. Also, in general, the car must be necessary for transportation to and from work.
In the event the judge does not approve the Reaffirmation Agreement or the debtor’s schedules do not reflect an ability to pay for the monthly financing payments, it may be possible that the finance company will permit the debtor to keep the vehicle without the Reaffirmation Agreement. Please note that there is no requirement for the finance company to permit the debtor to keep the vehicle.
The bankruptcy code states that a debtor who wishes to retain personal property in a chapter 7 bankruptcy case must enter into a Reaffirmation Agreement. Although the Bankruptcy Code indicates that the Reaffirmation Agreement relates to any and all personal property, typically, in practice, the Reaffirmation Agreement relates to retaining vehicles and furniture, only.
Due to creditor’s fraud and undue pressure with regard to enticing debtors to sign the agreement, the Bankruptcy Code includes specific terms and clauses that are required to be included in the Reaffirmation Agreement. In practice, all creditors use the same Reaffirmation Agreement form, which includes all the required information.
The following terms are required to be included in the Reaffirmation Agreement:
- the agreement represents a fully informed and voluntary agreement by the debtor;
- the agreement does not impose an undue hardship on the debtor;
- debtor’s attorney fully advised the debtor of the legal effect and consequences;
- debtor’s attorney may sign a certification indicating that the payment to the finance company is not an undue hardship.
However, based on the difficulty to make such determinations and the liability in connection with making such determinations, typically, the attorney will not certify to same. Typically, in New Jersey, after the Reaffirmation Agreement certification is signed, the Reaffirmation Agreement must be filed with the Court and scheduled for a hearing. At the hearing, the debtor must appear before the judge and explain the need for the property and why the payment to the finance company is not an undue hardship. Additionally, the judge must inform the debtor of the negative aspects of the Reaffirmation Agreement.
Remember, it is never an absolute requirement to enter into any Reaffirmation Agreement.
Contacting a Chapter 7 Bankruptcy Attorney
If you are considering filing for bankruptcy, you may need to take steps to prevent your vehicle from being repossessed. Contact experienced New Jersey bankruptcy attorney Robert Manchel, if you have any questions about your chapter 7 bankruptcy or Reaffirmation Agreement. Free consultations.