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

Home and keys floating on a life preserver, visual concept for legal blog discussing signing a reaffirmation agreement after chapter 7 bankruptcy.

After you file a Chapter 7 bankruptcy, your bank or mortgage company may ask you to sign a reaffirmation agreement to keep your house or car. Since bankruptcy is designed to free you from debt and stop collections efforts, these calls from creditors can be frustrating. After all, federal bankruptcy laws are designed to shield your residential home and primary vehicle. So do you need to reaffirm those debts after your bankruptcy is over?

What is a Reaffirmation Agreement?

A Chapter 7 Bankruptcy Reaffirmation Agreement is a contract you sign with your secured creditors that says you still intend the debt to survive after the bankruptcy court discharges your debts. A secured debt is any loan that requires you to put forward collateral – property that you will surrender if you fail to pay the debt. The most common types of secured debt for consumers are:

  • Mortgage loans on real property like your home
  • Home Equity Lines of Credit (HELOC) or second mortgages on real property
  • Auto loans
  • Secured loans for appliances

A Reaffirmation Agreement is designed to assure creditors that you intend to continue to make new payments as they come due in exchange for renewing the creditor’s claim to the collateral property.

Do You Need to Sign a Reaffirmation Agreement to Keep Your House or Car?

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

Connecticut law allows you to “keep and maintain payments” on your secured debts without the need to sign a reaffirmation agreement. This was established by a federal case in this jurisdiction regarding mortgages and state law with respect to car loans.

This means that if your home mortgage and auto loan are paid current, you don’t have to worry about losing your home or car. As long as you can afford to continue making payments, there should be no problem doing that. Since your other debts, like credit cards and medical debts, will be discharged in your Chapter 7 bankruptcy, you will have more resources available to put toward those payments.

However, this isn’t the case in other parts of the country. In some parts of the country, Chapter 7 debtors are required to “reaffirm” their personal liability on secured loans, by signing a Reaffirmation Agreement, to retain the collateral. Most banks are national banks, and their employees are not necessarily familiar with Connecticut law in particular. They may tell you that you have To sign a Reaffirmation Agreement to keep your house or car after your bankruptcy.

Once a debt has been reaffirmed, it can never be discharged. Since there is no benefit to consumers who file for Connecticut bankruptcy, it is not recommended that Connecticut borrowers sign a Reaffirmation Agreement on Connecticut debts, except in special circumstances. At Lawrence & Jurkiewicz, LLC, when banks tell our clients they have to sign a Reaffirmation Agreement to keep their house or car after bankruptcy, we notify banks that this is not the law in Connecticut. We have never had a problem helping our clients avoid reaffirming the debts.

Can the Bank Repossess Your Car or Foreclose on Your Home After Bankruptcy?

Remember that, though many people file for Chapter 7 bankruptcy to eliminate credit card or medical debt, a bankruptcy discharge generally erases your personal liability on all debt you owed on the date you filed, including past-due amounts on your secured debt. That means that even without a Reaffirmation Agreement, your creditors cannot repossess your car or foreclosure on your home for failing to pay those amounts.

If at some future time you can no longer afford the payments (for example, because of unemployment or illness), and accumulate a new unpaid balance, the bank may be able to reclaim the collateral. However, it will never be able to sue you for a “deficiency”, claiming that there is a shortfall in the value of the collateral as compared to the amount owed. That means the limit of what your creditor can get from you is the resale value of the collateral on the loan.

Get Help Protecting Your Property from Collections from an Experienced Bankruptcy Attorney

At Lawrence & Jurkiewicz, we can help you sort through your secured and unsecured debts and understand what will happen to those debts after filing for bankruptcy. We will help you file a Chapter 7 bankruptcy, and inform your creditors of how Connecticut law applies to Reaffirmation Agreements. We want to help you protect your property in and after bankruptcy. Please call (860) 264-1551 or contact us for a consultation.