Reaffirmation of Debts on Cars & Homes
Bankruptcies are meant to give you a “fresh start”. It says so right in the statutes. You did not mean to get into bankruptcy. How in fact did that happen? It happens lots of ways but the typical scenario involves debts that just get to be too much to handle, so that there is no way to get out. It may stem from crazy medical bills or credit card debt that builds up slowly but surely. But no matter what, often it comes from the FINANCIAL MARGIN that you provide for yourself. What do I mean by “financial margin”? I mean the layers of protection that you have provided to make sure that you do not get too close to the line. A friend of mine wrote a book that went into what he suggested were many layers of financial protection so that you never get close to financial problems and so that in fact you can progress to financial success. This is overkill for most of us. But there are things that we can all do. When you file bankruptcy, you have a choice on secured debts to reaffirm. So, if you have a car or a home that you owe money on, you can sign papers to reup the debt. If done, that has to be done with much forethought. Many, many times REAFFIRMATION is a bad idea. Let’s talk about a financial margin and how to set it up. $200.00 is not much money but it is a LOT of money if you need it. There are times when $200.00 might mean the difference between you making it or not making it. So you plan ahead. Maybe you keep $200 in your bank so that you have money when you need it. Maybe you have a stock worth more than $200 so that you could cash it in if you needed it. The $200 gives you a margin; a small one maybe but a margin. Let’s say you have a car payment of $200 per month. If you have that $200 margin then you know that at least one month of crazy stuff happening in your life (and we all have those months) can be protected against and you can make the car payment come hell or high water. But let’s look at this on a different level. I am here to help you. To do that let’s look at the next level of protection. It has to do with NOT having a car payment in the first place. Most successful people do not look to have a car payment. Why would anyone make the decision to pay twice what a vehicle is worth? After a while, the shiny metal is not so shiny. That would be in the month that life smacks you with an unexpected death, a car stolen out of your driveway, an injury to your child with unexpected medical bills, or any number oif things, None of us avoid all of them. You are thinking about bankruptcy. Somethng that you did not expect brought you to this point. We cannot tell what will happen and we do not know what most of our decisions will bring. But you can avoid one problem and that is a car payment. You can buy a POS car in our society that gets 32 miles per gallon. You can save up money and buy SOMETHING. Then later you can save up your money and buy a great car that you ONLY PAY FOR ONCE. That is what 20 per cent for 5 years is of course, paying exacly TWICE what the car is worth. Letting someone else make that kind of money off of you is nuts. REAFFIRMATION means that the bankruptcy did not happen as to that debt. If you miss the payments they sell the car at wholesale and then come after you for the balance. You have heard the stories. Bankruptcy is a drastic move that is made to make your boat float. Reaffirmation puts a hole in the boat. You are missing the opportunity to have another level of financial margin. The best advice is to save back a little money and to take the financial barnacles off of your boat. If you want to get floating again, file bankruptcy. Want to start slowing yourself down again? Get a car payment. Many times the loan company does not want to lose you. They do not want you to give the car back as they do not want to sell it wholesale and they certainly do not want to lose your monthly payment. They live off that monthly payment. Ford Motor Credit insists you reaffirm or they take back the car. I say give them the car but yes with FORD you must reaffirm if you just have to have that car, if the finances make sense. Most other lenders do not insist on reaffs and they will let you keep going the way you have been as long as you make payments. Yes there is a level of chance here, and you may lose your car, but you have the power of knowing that they do not want to lose your monthly payment. Ask your attorney how that all works. AND, down the road, if for any reason you want to stop making payments you just give the car back…and WALK AWAY. These lenders are not dumb and they do not like being between a rock and a hard place. They want badly to convince debtors like you that because of credit concerns, building credit, or any other plausible reason that they can come up with, you should reaffirm. Of course they want you back on the hook. But this bankruptcy is your chance to get off their hook. Do you want to give up that chance? If you are injured in a motorcycle accident, after you get well you do not go out for a ride on your cycle and then jump off to injure yourself. Don’t reaffirm. REAFF on your home is different. Some attorneys, maybe many, think that it is MALPRACTICE for an attorney to agree to reaffirm a home. I mean signing on for a reaffirmation on a $400,000.00 debt is a whole nother thing. Again, these lenders are not dummies. They will tell you whatever they can think of to make you reaffirm your debt. I had a PTSD old client in front of me one time screaming at me because his mortgage company told them that they could not modify because I did not have him reaffirm. The law does NOT require you to reaffirm a home mortgage. NO ONE can take your home because you do not reaffirm. But banks can POUT by refusing to send you monthly statements and refusing to let you bank online. Maybe they can refuse to modify you. Maybe. Maybe they were never going to modify you anyway.
Whether you are reaffirming on a vehicle or on a $400,000.00 mortgage, it is usually a bad idea. Talk at length with your attorney about it. TRUST the one you paid who is working for YOU. Think long and hard about trusting the guy who wants to put you back on the hook for $400,000.00 or for metal that will not remain shiny.