By Peter Bricks
The majority of Chapter 7 debtors have secured debt in the form of either a car loan or a home mortgage. As such, they have to make the decision whether to reaffirm this debt during the case. Reaffirming in bankruptcy means you have the choice to get rid of the debt, but choose to “keep” it instead.
A debtor typically does this because he believes it is necessary to keep his car or home. This is sometimes a myth, particularly as to a mortgage. Also remember that not reaffirming gives the debtor increased flexibility to move after bankruptcy, if he so chooses.
A reaffirmation agreement must be signed before the case closes. However, once the debtor has chosen to reaffirm, is that decision final? Surprisingly to some, it is not.
Under 11 USC 524, the debtor has the option of canceling a reaffirmation until the later of two events: (1) 60 days after it is filed or (2) upon the debtor’s discharge. As a lot of debtors do not sign or file their reaffirmation agreements until after their meeting of creditors, the discharge can occur less than 60 days after the filing of the reaffirmation agreement.
However, sometimes discharge gets held up, and might not occur for many months after the reaffirmation agreement is filed. In those cases, the debtor gets many months to change his mind.
Why might the debtor change his mind? It could be as simple as the debtor had a change of heart and no longer wants the car he thought he wanted to keep, or perhaps the debtor realized that reaffirming a mortgage was not necessary to remain in the home or get the mortgage modified after bankruptcy.
I have even seen instances where the debtor got into a wreck shortly after reaffirming and the vehicle was now no longer operable. As such, it made no sense for the debtor to reaffirm and then utilize his gap coverage to cover the loss compared to the option of simply rescinding his reaffirmation agreement.
The point is that regardless of the reason the debtor chooses to change his mind, he can still do that if he meets the guidelines above. If it’s too late, then it is forever reaffirmed, and the debtor is stuck with the debt until it’s ultimately paid off, forgiven or collected.