How to Get a Good Deal on Reaffirmation Agreements in Bankruptcy

Financed your appliances? How to keep them in bankruptcy?

Image source: Flickr user Sunset Removals

When you choose to file a Chapter 7 bankruptcy to get rid of debts you can't afford to pay, most unsecured debt is wiped away as part of your fresh start. This includes credit cards, medical bills, past due utility balances and more. But if you have financing agreements that are secured by assets, you'll have to make some tough decisions about what to do if you're behind on the payments. One of the options you can pursue is a reaffirmation agreement.

What is a reaffirmation agreement?

A reaffirmation agreement is essentially a brand new loan that will survive the bankruptcy. These should be approached with caution because they represent a brand new debt. If you reaffirm and can't pay, the debt can come back to haunt you and you won't have the option of bankruptcy relief because of the seven years between filings waiting period.

When is a reaffirmation agreement a good idea?

Reaffirming an unsecured debt is usually not a good idea. The whole idea of bankruptcy is to get you a fresh start from these. But for a secured debt, if it's an asset you can't live without - like if you need your car and don't have the money to buy a replacement one – you may want to consider reaffirming. You may also want to consider reaffirming debts if you can get a sweet deal.

Reaffirming a car loan

If your car is older, as in the case where you bought it used, so the lender won't get much if they repossess it, you may be able to reaffirm at a more advantageous rate or for a lower principal balance. If your loan is from a small bank or financing outfit, you stand a better chance of getting them to budge on balance owed or dropping the interest rate than if you financed through an auto maker loan program.

The best thing to do is ask. Contact your lender, tell them you're filing bankruptcy and then tell them the state of the vehicle. If there are mechanical problems, dings, damage, ripped upholstery, high mileage or other damage, they may be more likely to work with you than to take back a vehicle they'll struggle to sell. Don't try to make the car sound better, worse is actually better in this case.

Reaffirming an appliance loan

Large appliances like a refrigerator or washing machine can usually be repossessed and sold by the dealer that financed it to you. However, if the items is several years old, they will be more likely to let you keep the item or cut you a good deal. You may be able to reaffirm for less than half what you owe. Even if you decide not to reaffirm, they may not com get the item because recovery comes at a cost.

Reaffirming an electronics loan

If your laptop, TV or other electronics asset is more than a year old, the financing company will be more inclined to cut you a deal on keeping the item because technology goes obsolete so fast and selling used items does not profit them greatly. But if you bought the item less than a year ago as a new item, they are more likely to tell you to bring it back or keep up with the payments.

If it's a laptop that you need for work and can likely afford the payments after you get bankruptcy relief, you may want to reaffirm as-is. If it's a TV, you may want to let them take it back and make do with another or pick up a cheap replacement. The whole idea of bankruptcy is to get you the best possible debt relief, so letting go of financing agreements you can't afford is wise.

Reaffirming a jewelry loan

The mark-upon jewelry is ridiculous. If you have a loan for a ring, necklace or other item, get it appraised at another jewelry shop and take it to a pawn shop to find out how much you could get for it. Get these both in writing then contact your lender. Let them know you researched what the item is worth and ask them to cut you a deal. You may be able to get the debt reduced by half. If not, this is something you should consider surrendering since it's not a necessity.

Reaffirming a furniture loan

Used furniture is not a great resale item for the lender if they repossess it. The older the furniture, the more likely you'll get a better deal. You may want to tell the lender that they can have the sofa back. Tell them your dog gnawed a leg off of it and your kids have trashed it with Kool-aid spills. Tell then about the rips, tears and stains and make it clear you're willing to give it up.

If they don't cut you a really good deal, don't reaffirm. It's very likely that the lender will never follow up to take back the furniture unless you just bought it a few months ago. It will cost them hundreds of dollars to come retrieve it and so it may not be worth it to them and they will just walk away from the debt and the furniture item(s).

Final thoughts

Think long and hard before you execute a reaffirmation agreement. But remember this. It doesn't hurt to ask and you should negotiate hard to try and get a good deal. If you do get a good offer, you still don't have to accept it, but you should know where you stand and what your options are so you can make an informed decision of what you may want to reaffirm or let go.

Be sure to discuss any reaffirmation negotiations with your North Carolina bankruptcy attorney before you sign any documents. Contact the law offices of John T Orcutt today for a free consultation on getting a financial fresh start.