The Bank Says I Have To Sign a Reaffirmation Agreement To Keep My House Or Car After Bankruptcy. Do I?

In Connecticut the short answer is, usually, “no.”

Although many people file Chapter 7 bankruptcy to eliminate credit card debt, a bankruptcy discharge generally erases your personal liability on all debt you owed on the date you filed, including secured debt like your home mortgage and car loan.

If your home mortgage is current and you want to keep your home, there will be no problem doing that, so long as you can afford to continue the payments (and if you are discharging credit card debt, your ability to do that should improve). Similarly, if your car loan is current and you want to keep your car, there will be no problem doing that, either, so long as you can afford to continue the payments.

If, at some future time you can no longer afford the payments (for example, because of unemployment or illness), the bank may be able to re-take its collateral, but it will never be able to sue you for a “deficiency” (the amount of its shortfall if the value of the collateral is less than the amount of the debt).

Your ability to “keep and maintain payments” was established by federal case law in this jurisdiction (with respect to mortgages) and by a provision of the Connecticut General Statutes (with respect to car loans).

But this is not necessarily the law in other jurisdictions. In some parts of the country Chapter 7 debtors are required to “reaffirm” their personal liability on secured loans, to retain the collateral. Because a reaffirmed debt can never be discharged, and because there is usually no benefit to our clients in doing so, we never do that here, except in special circumstances.

Most banks are national banks, and their employees are not necessarily familiar with the laws of this jurisdiction. When clients have been told they need to sign a reaffirmation agreement, we advise the bank that this is not so, and we have never had a problem!

We welcome you to learn more about Chapter 7 bankruptcy in Connecticut and whether it’s right for you. If you are considering bankruptcy and would like to discuss your options, contact us for a free consultation.