A discharge in a Chapter 7 bankruptcy destroys your personal obligation to pay. When it comes to debts such as mortgages or automobile purchases, you could surrender the home or the vehicle and discharge the deficiency on those items. Conversely, you could keep the home or the vehicle and continue to make the payments. But you cannot discharge the mortgage debt and keep the house. Similarly, you cannot discharge the automobile debt and keep the vehicle.
A reaffirmation agreement keeps your bankruptcy from eliminating your personal responsibility to pay the promissory note on your home. You have the ability to keep your home without signing a reaffirmation agreement. If you do not sign the reaffirmation agreement on your mortgage, your personal obligation for paying the mortgage is eliminated but the lien remains on the home until the mortgage is paid in full. Even if you do not sign the reaffirmation agreement the mortgage company can still foreclose if the mortgage payments are not being made in a timely manner.
An advantage to not signing the reaffirmation agreement on your mortgage is that now and forever more if you ever wish to stop paying on the mortgage and walk away from your home, the mortgage company cannot ever come after you personally to pay the rest of the money due under the mortgage. A disadvantage of not signing the reaffirmation agreement on your mortgage is that if you continue to make the mortgage payments, the fact that you are timely making your mortgage payments will not be reported on your credit report. This means that your credit score will not be positively impacted by timely making your mortgage payments.
If you are keeping your automobile you generally must either sign a reaffirmation agreement or a lease assumption. If your vehicle is a purchase, you sign a reaffirmation agreement. If your vehicle is a lease, you sign an assumption. A reaffirmation agreement keeps your bankruptcy from eliminating your personal responsibility to pay the promissory note on your vehicle. An assumption keeps your bankruptcy from eliminating your contractual responsibility to pay under the vehicle lease. Both reaffirmations and assumptions are provided by your automobile creditor. Unlike a mortgage on your home, you generally do not have the option of not signing a reaffirmation or an assumption and still retaining your vehicle. When your automobile creditor does allow this, it is referred to as “pay and drive.”
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC