I’ve talked to you a bit before about reaffirmation agreements in chapter 7 bankruptcy: what is a reaffirmation agreement? Now I’d like to give you a little advice from a bankruptcy lawyer in Salt Lake City about the exact procedure for executing a reaffirmation agreement.
By way of Review: a reaffirmation agreement is used in bankruptcy to allow an otherwise dischargeable debt to survive bankruptcy. When you file bankruptcy in Utah, you are up against some pretty low exemption amounts. With my chapter 7 clients, I generally don’t see problems with this in terms of real property because the majority of Chapter 7 bankruptcy filers are either renting a residence or they are planning on surrendering their house. Where you can run into problems in Chapter 7 Bankruptcy in Utah is with your vehicle. Utah offers a paltry $2500 exemption for your vehicle. Consequently, many clients wish to keep their vehicle, but they may have more than $2500 in equity and are exposed to losing the vehicle in a trustee’s sale.
This is where a reaffirmation agreement can be helpful. If there is a lien on the vehicle (a loan that is still being paid off) my client and the creditor can agree to continue their debtor-creditor relationship even though under normal circumstances the bankruptcy would extinguish the lien and the car would be sold or returned to the creditor. We call that a “reaffirmation” of the debt – a we enter a “reaffirmation agreement”.
Generally, the creditor will send your bankruptcy attorney a partially completed reaffirmation agreement and cover sheet. The creditor will fill out as much information as they can, and allow you to fill in the blanks. Your bankruptcy lawyer will then advise you to follow these 5 steps in completing the agreement:
1 – read the entire reaffirmation agreement, as you would any important contract.
2 – make sure the creditor holds a valid and perfected lien on the car. If they do not, this can spell trouble. Your Utah bankruptcy attorney can help you with this step.
3 – complete the cover sheet of the reaffirmation agreement. This will generally involve filling in some blanks relating to your income and expenses.
4 – fill in the blanks in the reaffirmation agreement. An attorney may need to assist you with this step also, particularly regarding the questions about presumption of undue hardship.
5 – compete the agreement by signing it and sending it back to the creditor. (This step seems to vary the most from state to state – courts in some states will require a hearing in order to enter a reaffirmation agreement. It is also common for creditors to attend the 341 meeting and have you execute the reaffirmation agreement at that time.)