Entries by Atlanta Bankruptcy Expert and Attorney Lorena Saedi

How to Decide Which Chapter of Bankruptcy to File: Chapter 7 or Chapter 13?

Once you’ve decided that bankruptcy is the right solution for your financial situation, you will need to decide which type of bankruptcy is most beneficial. While there are many different “flavors” of bankruptcy available, the two chapters that apply to most consumers are Chapter 7 and Chapter 13.

Choosing the Right Type of Bankruptcy

In most cases, the type of bankruptcy filed will be contingent on two things: Your household income and your assets. Your income is important because it may preclude you from filing a simple Chapter 7 case, and your assets are important because if you have nonexempt property, you might have it sold by the Chapter 7 Trustee in a Chapter 7 case, but can protect it in Chapter 13.

What does a Chapter 7 Bankruptcy Do?

A Chapter 7 bankruptcy is the process of going through the federal courts is receive a court judgment that releases you from responsibility for repaying debts. You are permitted to keep “exempt” property, but “non-exempt property” will be sold to repay part of your debt.  Exempt property differs from state to state.

If you have assets that are not protected by exemptions then your assets will be sold by a court-appointed bankruptcy trustee, aka as the Chapter 7 Trustee. The proceeds go toward paying the trustee, covering administrative fees and, if funds allow, repaying your creditors as much as possible.

Currently, Chapter 7 is the most popular form of bankruptcy, making up the majority of bankruptcy case filings.

What does a Chapter 13 Bankruptcy Do?

A Chapter 13 Bankruptcy is a debt consolidation and repayment plan under the protection of the federal courts.  Depending on your income and assets, you may not have to repay all of your unsecured debt through the Chapter 13 Plan (which can last up to 5 years). Consumers who file for Chapter 13 usually have the ability to retain whatever assets they wish as long as a reasonable Chapter 13 Plan is proposed to the court.

Here are a few scenarios that illustrate which bankruptcy strategy would be best:

1. Debtors with low income and few assets – Chapter 7

If you have a substantial amount of debt such as credit cards, medical bills, collections, and personal loans but not very much in terms of assets then Chapter 7 may be your best choice if you can qualify income wise. It allows you to discharge your debt and start rebuilding your credit usually in about 4-5 months.

2. Small business owner– failing business or little equity in assets – Chapter 7

If you are small business owner and realize that you have a failing business but little assets then Chapter 7 will usually be the best chapter to file because it will allow you to wipe out your debt and move on to a new business opportunity. Most small business owners have to co-sign and/or guarantee their business debt so when the business fails they will need to file to stop collections against them personally.

3. Unemployed Homeowners – Significant Equity – Chapter 7 or 13

If you have a significant amount of equity in your property, then Chapter 7 may or may not be the best option. If your state’s real estate exemption protects your home then you don’t have to worry about a trustee selling your property but if the state homestead exemption doesn’t cover the equity, you may lose the home in a Chapter 7 bankruptcy when the trustee sells the home to pay your creditors. In a Chapter 13 bankruptcy however, if you can make your payments to the mortgage company and to the trustee each month you can retain your property.  You don’t necessarily have to have a W-2 job to be in a Chapter 13 case.  We have many clients who are self-employed, receive SSI, or receive family assistance to fund their repayment plans.

4. Employed Homeowners Facing Foreclosure – Chapter 13

For homeowners who have fallen behind on mortgage payments, Chapter 13 offers a way to catch up or “cure” past due mortgage payments while simultaneously eliminating some portion of dischargeable debt. This means they can save the home from foreclosure and get rid of a lot of credit card debt, medical debt, and possibly even second and third mortgages. Chapter 7 bankruptcy does not provide a way for homeowners to make up mortgage arrears or remove junior liens.  For move information on “Lien Stripping” please check out a current legal vlog: Lien Stripping in Bankruptcy.

5. Debtor that owes back child support/alimony and is facing jail or license suspension – Chapter 13

If you are facing a license suspension or jail time for failure to pay child support/alimony then you can file a Chapter 13 to restructure the arrears and give yourself 5 years to repay the balance. In Georgia, child support arrears are placed in the plan for repayment and all creditor collection actions as to the debt must stop.  Of course, debtors have to continue with their ongoing child support payments but this allows them some relief by allowing them to restructure the arrears.

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Notice of Postpetition Mortgage Fees, Expenses, and Charges in Chapter 13 Bankruptcy Cases

Prior to 2011, many consumer would emerge from their Chapter 13 cases thinking they were debt free but instead would soon be hit with a foreclosure notice due to undisclosed and unpaid post-petition charges and fees. The rules were updated in 2011 so that debtors were provided ample notice of any changes to payment and/or post-petition fees.

According to Federal Bankruptcy Rule 3002.1, holders of secured claims on a Chapter 13 debtor’s primary residence are required to file a detailed notice with the court for recovery of all post-petition fees, expenses, and charges it seeks to recover from the debtor. The purpose of this requirement is to promote further transparency and more emphatically safeguard debtors’ fresh starts.

Mortgage companies now have an obligation to notify consumers who are in a bankruptcy case to provide the following notices:

  • That their mortgage payments have changed (this typically happens every year since escrows change)
  • Provide notice if there have been any fees, expenses or charges added to their mortgage account or balance.
  • At the end of the case, file a notice as to whether the debtor is current or not on the post-petition mortgage payments.

If you are in a Chapter 13 Bankruptcy bankruptcy case and you have a mortgage you should be aware of these requirements and make sure that your lender is compliance with these rules. Federal Rules of Bankruptcy Procedure Rule 3002.1 allows the bankruptcy court to award appropriate expenses or attorney fees to debtors who do not receive these notices.

If you have any questions about bankruptcy please don’t hesitate to reach our to our office at https://saedilawgroup.com or [email protected].

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The Bankruptcy Process: What to Expect When you File Bankruptcy

Making the decision to file for bankruptcy can be daunting. Once you decide that bankruptcy is the right choice for you make sure that you understand the process from start to finish.

When filing for bankruptcy, there are a number of steps to take in order for your petition to be approved:

1. Your Financial Inventory

The first step is to assemble all of your financial information. You need to make a list of all your debt and all sources of income.  If you are married, but your spouse is not jointly filing bankruptcy with you, include his or her information as well because the court wants to know about HOUSEHOLD income and expenses.  Sometimes non-filing spouses freak out when they are asked for their information but without it, their partner will not be able to complete their case.

  • Debts. Include the creditor, the current balance, the interest rate, your monthly payment, and any other relevant information.
  • Income. Include any money you have received for any reason in the past six months, any money you expect to receive in the future, how often you receive this money, and where the money is coming from. This includes your regular working income, unemployment compensation, income from side jobs, dividends or interest from investments, pensions, and money contributed to the household by other people, such as your spouse or family members.
  • Assets and Property. Include anything you own that has value, such as stocks, savings accounts, real estate, cars, collectibles, and art. Also list items like clothes, home furnishings, and other personal possessions, especially if they’re particularly valuable.
  • Monthly Household Living Expenses. Include your costs for rent or mortgage, food, utilities, medical expenses, clothing, taxes, transportation, child support, and alimony. When listing variable expenses, such as utilities, calculate an average based on the past year’s monthly bills. While the court realizes that these expenses can change, you need to provide an average estimate.

Keep in mind that the trustee is 100% within their right to request proof of income and expenses so make sure you can verify the amounts you claim.

2. Credit Counseling

In order for your case to be accepted by the court you MUST complete your pre-bankruptcy credit counseling course BEFORE your case is filed.  A date stamped certificate will be issued upon completion of this course (which you can do online or over the phone) which your attorney will need to file with the court. If you have any questions about this course we have a more detailed video about this process: The Pre Bankruptcy Credit Counseling Course.

3. The Creditors’ Meeting

After the bankruptcy petition has been filed and accepted, your creditors receive a notice that you have included their debt in your petition. This letter also notifies them of the automatic stay on your accounts. Approximately 30-45 days after your filing date, the court will schedule a meeting for your creditors. At this meeting, also known as a 341 meeting of creditors, creditors can send a representative to question you or the trustee. While creditors are not required to attend, you are. Please note that this hearing is NOT in a courtroom or in front of judge.  The hearing will be held in a conference room.   Most of the time, creditors do not appear at this hearing but if they wish to they can. You will be sworn under oath to answer all questions correctly and to the best of your knowledge so make sure you are 100% truthful in all of your answers.

During this meeting, the trustee will make sure you are aware of the consequences of declaring bankruptcy and that you understand the effect of reaffirming a debt. You will then confirm that you wish to move forward with the bankruptcy proceeding. For a list of questions that may be asked at the hearing please click on this article: Chapter 7 341 Meeting of Creditors Hearing Questions

If you a filing a Chapter 13 case then please click on the following article for a list of questions that my be asked by the Chapter 13 Trustee: Chapter 13 341 Meeting of Creditors Hearing Questions

The Automatic Stay
Once you have filed your bankruptcy petition, the automatic stay (11 U.S.C. Section 362) prohibits your creditors from contacting on your debts. Any attempt to do so after your case has been filed is a violation and sanctions can be imposed.

After the 341 Meeting of Creditors
Once your creditors have had a chance to question you and review your payment plan, they can either submit a formal objection or do nothing. If they choose to submit an objection, they generally have 60 to 90 days to do so from the time of the meeting.

In a Chapter 7 bankruptcy, the next step is that the trustee will review your assets to see if any unprotected assets can be liquidated to pay your creditors.  Make sure you have reviewed your bankruptcy exemptions with your attorney to confirm which assets are or are not protected. Typically, most cases do NOT have assets to liquidate.  Once the trustee determines that there are or are not assets to distribute, a report will be issued to clear the way for the discharge.

In a Chapter 13 bankruptcy, there are almost ALWAYS objections in a case.  You will have another 30 days to review these objections with your attorney and make sure they are resolved before your next hearing.  If you have made all your trustee payments and these objections have been resolve then your case will generally be approved by the judge at a confirmation hearing.  Once your payment plan is confirmed as approved, you will continue to make your payments directly to the trustee on a monthly basis. The trustee will then pay your creditors for you. After completing the payment plan, the judge will issue a discharge order for any remaining debt.

4. Post-Bankruptcy Credit Counseling and 1328 Certificate (Chapter 13 Cases Only)

Once you have had either your creditors meeting (Chapter 7) or are close to making your last payment (Chapter 13), you will need to undergo a post-bankruptcy credit counseling course.

For Chapter 7 bankruptcies, this must happen within 45 days of the creditors meeting. In our district, the Northern District of Georgia, as long as this is filed before your discharge date then your case will discharge with no problems. For Chapter 13 bankruptcies, this must happen before the day you make your last payment or the day you file a motion to discharge the bankruptcy if you won’t be finishing the payment plan. In addition to the post-bankruptcy credit counseling course being filed in your case, you must also file the 1328 certificate (which will be sent to you upon the completion of your payments) with the court. Failure to do so will result in your case closes out WITHOUT a discharge.

If you have any questions about bankruptcy please don’t hesitate to reach our to our office at https://saedilawgroup.com or [email protected].

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Taking Out a Loan While You Are in a Chapter 13 Bankruptcy Case

Most Chapter 13 cases will run the maximum 60 month term. The problem is, in 5 years, you may need to get a new car or repair your home while you are in the bankruptcy case. The court will permit you to incur new debt for personal, family, or household purposes if it is necessary for you to continue to make payments under your plan. The best example of this is if you need a reliable car to get to work so you can earn money to make payments to the Chapter 13 plan. As long as the car loan meets your specific trustee’s debt guidelines (these are usually published on their site) the court is likely to approve the loan.

Before you can incur debt however you need to obtain the court’s permission. The procedures you must follow to ask the trustee and court for permission to incur new debt vary, so check with your Chapter 13 trustee or attorney to find out the specific procedures required in your bankruptcy court.

In our district, the Northern District of Georgia, here is the process for obtaining a car loan while you are in a Chapter 13 bankruptcy.

1. Obtain the proposed financing statement containing the loan’s terms (the length of the loan, interest rate, and monthly payments) from your dealership and information about the car you intend to purchase.

2. Provide this information to your attorney so that a Motion to Incur Debt can be filed and a hearing scheduled.

3. Once the Motion is granted, an order is entered on the docket and you will provide this to the car lender to finalize your loan.

Remember that this process takes AT LEAST 45 days and sometimes longer so be patient!

If you have any additional questions about Motions to Incur Debt please do to our website at https://saedilawgroup.com.

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Suspending Your Trustee Payments (Temporarily) While in Bankruptcy

A typical chapter 13 bankruptcy case requires that you make monthly payments to a chapter 13 trustee over the life of your plan. This plan could last anywhere from 36 to 60 months. Your plan may run less than that provided you pay off the debt in full. Unfortunately for many of our clients, during this 3-5 year period there may be life issues that come up which will require that we suspend the client’s trustee payments for a few months while they attempt to resolve whatever problem that came up.

Some typical reasons that we would file a motion to suspend our client’s payments-

  1. Client lost their job and then found another one.  Although they are now employed, the few months that they were not working caused them to get behind on other month to month bills.  By filing a motion to suspend their payments for 90 days, this allows them to catch up and then get back on track with their trustee payment.
  2. Client had to have surgery and was received disability pay while out of work. No one can predict illness or accidents. At least once a month we hear from a client that is having surgery and needs a short break from payments to give them time to get better.
  3. Client had a pipe burst in her home.  We had a client that had an upper story pipe burst and ruin most of her floors.  Although she had insurance on the property, she still had to cover the $1500.00 deductible (which she would not have had if she kept paying her trustee).  We requested 90 days off from payments so she could use that money to cover her deductible.

These are just a few examples of reasons that a client may need to have their trustee payment surrendered. Like everything in bankruptcy court, it really is on a case by case basis.   Typically, you would not want to request more than one of these Motions during the life of your case.  In addition, it is always best if you have already been in your case for at least 1 year before applying for a trustee payment suspension.

Many times, if a client can receive a short trustee payment suspension, that will prevent their case from being dismissed and they can continue on in their case. If you start having problems in your case which are only temporary, you may want to speak to your attorney about a Motion to Suspend bankruptcy payments in order to allow you to resolve these issues and allow you to continue in your case.   As long as you have a good reason for requesting the suspension and can provide documentation as to why the suspension is needed, most of the court will grant this request at least once during the life of your case.

If you have any questions about suspending your trustee payment then feel free to contact us at the information below:

www.saedilawgroup.com or [email protected] 

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Credit and Bankruptcy: What Happens to Your Score?

A common concern that many people have when considering filing for bankruptcy relief is how filing a bankruptcy will impact their credit score. While your credit score may be lower for a while, it is not permanent decrease in your credit score. In most cases, filing a bankruptcy case improves your credit score within a year or two after filing. Filing for bankruptcy will do the most damage when it first hits your credit report. As time elapses, the effects of your bankruptcy filing will lesson over time.

The two types of personal bankruptcy affect your credit differently. In both cases, bankruptcy creates a negative item on your credit report. However, the time this negative item remains differs between the two Chapters:

If you had excellent credit before filing then you will see a bigger dip in your score than someone who already has “beat up” credit.  FICO scores only go down to 300, but it’s rare to see anything below 500.

How to raise your credit score after bankruptcy

No matter where you started and ended up, the good news is that you can bounce back quickly. Most people see their credit score increase dramatically in 1 year.  In 24 months most of our clients have reached at least a 700 score if they have been paying their bills on time since discharge.

The formula that we see that works best for our clients to rehabilitate their credit is as follows :

  1. Six weeks after discharge you need to pull your credit report and make sure that your creditors are reporting correctly.  Accounts need to reflect a $0 balance. If you see any errors then you need to dispute this with the creditor and credit reporting agency.
  2. Secure one secured credit card in order to start rebuilding your credit.  Yes, you will get charged fees for this service but in 6-12 months this account will switch to a regular credit card if you maintain your payments on time.
  3. If you are reaffirming your car or home (and the lender agrees to report to the credit agencies) then make sure you maintain these payments on time.
  4. Sign up with CreditKarma (it’s free!) and monitor your credit.

Stay away from credit repair companies

You see the ads in newspapers, on TV, and online. You hear them on the radio. You get fliers in the mail, email messages, and maybe even calls offering credit repair services. They all make the same claims:

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

“We can erase your bad credit — 100% guaranteed.”

Don’t believe these claims: almost every time they are a scam. The fact is there’s no quick fix for creditworthiness. There are no overnight solutions to fixing your credit history.You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.

Look for these signs to determine if a credit repair company is trying to pull a scam:

  • It promises to remove negative information from your credit report. No one can legally remove negative information from a credit report that is accurate and must remain on your report for a set amount of years; most information stays on your report for seven years while bankruptcy information can remain for ten years.
  • It requests an upfront fee before any type of credit repair is performed. A legitimate company will not demand payment before the service is provided.  Remember that improving your credit can be done, but it takes time.
  • It offers to create a new credit report for you with different identification such as another Social Security number or business tax ID number. This is illegal. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
  • It asks you to sign blank forms and provide personal information so the company can act on your behalf to help with credit problems. Never sign blank paperwork. Never give out personal information without knowing the reason and with whom you are dealing. Once someone gets your personal information, you may be in danger of identify theft.
  • It sent you an offer through e-mail that you did not request. Many scam artists send out “official looking” e-mails in hopes that you will respond. This may be a phising scam. If you did not request information to be sent, do not deal with the company.

Additional Links:

https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf

https://www.creditkarma.com

https://www.fico.com

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Title Pawn Loans in Bankruptcy: How Are they Treated?

A title pawn is a transaction where the title to a vehicle is transferred to a pawnbroker in exchange for a loan. The transfer is subject to the borrower’s right to “redeem” the title. Under the Georgia Code, the transaction is treated as a sale with a qualified right of redemption. These terms are set forth in the title pawn contract. A typical pawn agreement will provide that the entire debt is must be repaid in 30 days. If the other party cannot pay the entire loan off (which almost no one ever can) then they can extend the loan another 30 days if they pay a monthly interest payment. In most title pawns, the borrower keeps “rolling over” the balance due by making interest payments, intending eventually to pay off the whole thing when money becomes available. If the borrower defaults, the title pawn broker has the right to repossess the vehicle to satisfy the debt.

Under the Georgia Code, title pawns are not the same as auto loans. Auto loans are “purchase- money” loans used to finance the purchase of a vehicle. As a result, the treatment of a title pawn in bankruptcy is different from the treatment of an auto loan and poses many problems for debtors looking for protection from creditors in a Chapter 13 bankruptcy case. Because title loans are characterized as pawn transactions, they are not subject to state usury laws.

In 2004, Georgia, banned payday loans (where lenders offer high-cost, short-term loans in exchange for putting a lien on a borrower’s future paycheck). However, Georgia still allows title.pawn loans with triple-digit annual interest rates.

Several years ago, a Chapter 13 plan was the perfect way for debtors to pay off a title pawn loan. Instead of paying the standard interest rates which can be up to 150%, bankruptcy debtors could cram the interest rate down to between 5%-7% and retain their cars. In addition, many debtors could pay the balance based on what the vehicle was actually worth, and not what was owed.

Due to several recent court cases, auto title pawn transactions can no longer be redeemed or repaid through a Chapter 13 plan. A debtor with a title pawn now has only three options: 1. They can pay off the loan entirely within their contractual grace period. 2. They can continue to make the monthly interest payment directly and then if the loan is repaid while they are still their plan the plan can be amended to allocate for the “additional money” now available. 3. They can surrender the vehicle back to the title-pawn broker.

If a debtor has already defaulted on the title pawn (meaning that they failed to make the interest payment on time), they are no longer protected from repossession of the vehicle. A typical auto loan lender is required to file a motion for relief from stay to reclaim the property however because the vehicle immediately becomes the property of the title pawn lender upon default, they do not have to request court permission. They can just take the collateral.

If you are starting to have financial problems and have a title pawn loan, understand that bankruptcy will not provide any assistance if you intend to attempt to retain it.

https://saedilawgroup.com

Questions? Schedule a FREE consultation online today: https://saedilawgroup.com/the_bankruptcy_process/

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Lien Stripping in Chapter 13 Bankruptcy

Lien Stripping in Chapter 13 Bankruptcy

Chapter 13 provides the very powerful tool of “lien stripping”, or removing second mortgages and home equity lines from a home. Chapter 13 bankruptcy allows such second mortgage loans to be stripped from a debtor’s principal residence if that second lien is found by the Court to have become unsecured. In order to do this however, the second mortgage must be 100% underwater.  Lien stripping is ONLY available in Chapter 13 cases.  Chapter 7 clietns cannot strip off a junior mortgage.

To “strip” off a secured second mortgage the Chapter 13 attorney must file a motion with the Bankruptcy Court (Motion to Strip Lien) in the Chapter 13 case immediately after filing. If the debtor can prove that the home is worth less than the amount owed on the first mortgage then the Bankruptcy Court can rule that the second mortgage is unsecured debt.

This second loan is then lumped in with the debtor’s other unsecured debts, and treated the same as other general unsecured debts in the Chapter 13 Plan. At the conclusion of the Chapter 13 plan, any remaining balance is discharged. The Bankruptcy Court will then issue a judgment that voids the mortgage. The Chapter 13 debtor can then emerge from bankruptcy owning his or her home free and clear of the second, stripped mortgage loan.

Due to the healthy real estate market (at least here in the Atlanta metro area), we are not seeing very many client’s “strip” off their mortgages.  However, if we suffer another real estate “down” market, which we almost certainly will, this option will be available to consumers.

For more information about lien stripping and any other bankruptcy matter please contact us at [email protected] or 404-889-8663.

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Reaffirmation Agreements and Bankruptcy

REAFFIRMATION AGREEMENTS IN BANKRUPTCY

If you have debt which you want to retain in your case you may be required to sign a reaffirmation agreement in order to prevent the collateral from being taken after your discharge. The most common questions we see here in our practice in Georgia is:

  1. What is a reaffirmation agreement?
  2. Which creditors require a reaffirmation agreement?
  3. Will the creditor keep reporting your payments on your credit?

WHAT IS A REAFFIRMATION AGREEMENT?

Individuals who file for bankruptcy protection do so to eliminate their debt and to obtain a financial “fresh start.” Not all debts are dischargeable, but most common consumer debts are. In some cases, a debtor may wish to keep making payments on debt even though that debt can be discharged in their bankruptcy.  When a debtor agrees to pay such a debt by contract, the debtor must enter into a reaffirmation agreement with a creditor to “reaffirm” the debtor’s intent to pay.  By entering into a reaffirmation agreement the debtor will be contractually bound to pay the otherwise discharged debt even if, at some point during the life of the agreement, the debtor is unable to make the payments.

WHICH CREDITORS REQUIRE A REAFFIRMATION AGREEMENT?

The decision to reaffirm a personal liability on secured debt depends on the type of secured debt. If the secured debt is real property (i.e. a mortgage loan on a residence), the debtor is reaffirming any personal liability that would be owed under the note. If the debtor enters into a reaffirmation agreement, he or she is liable for that amount. Here in Georgia, most Chapter 7 bankruptcy clients have to decide if they wish to reaffirm on their cars and mortgage loans.

Auto Loans:

If you have a vehicle and you wish to retain that car and keep making your payments then you will be required to sign a reaffirmation agreement,  Otherwise, the debt will be discharged with your case and even if you are current on your payment the lender may repossess the vehicle. While some car creditors may allow you to “retain and pay” without signing a reaffirmation agreeement, there is no legal requirement for them to allow you to do so without a reaffirmation agreement signed and filed in your bankrupty case.

Under § 521(2)(a), within 30 days of the filing of the petition or before the first date of the meeting of creditors, a debtor shall file with the court his or her statement of intentions, indicating whether the debtor intends to reaffirm or redeem the property in question for each secured debt. Under § 521(2)(b), the debtor has 30 days after the first date of the meeting of creditors to perform her stated intention. In regards to personal property (i.e a vehicle loan), the debtor may not retain possession of the property unless he or she enters into a reaffirmation agreement within 45 days of the first meeting of the creditors.

Mortgage Loans:

In Georgia, debtors are not required to sign off on a reaffirmation agreement in order to retain their property.  They can allow the loan to discharge but continue to make payments to the lender.  This means that if for some reason after the discharge of the case, the debtor cannot afford the home, they can simply walk away from the home and the lender cannot pursue any collection on the mortgage loan.

While we don’t recommend reaffirmation on mortgage loans we do understand why some debtors still opt to do so on a first mortgage.  Many times, in the case of a first mortgage, the benefit in signing a reaffirmation agreement is that the lender will usually agree to resume sending mortgage statements. The lender may also agree to resume credit reporting activities which will help rebuild credit.

In addition, signing a reaffirmation agreement may also allow the debtor to entertain the full range of assistance programs offered by the lender, and they may be eligible for a loan modification where they might otherwise be disqualified (because with no liability on the underlying note, some lenders may determine that modification of the underlying note is not feasible to the extent that it is unenforceable except through foreclosure). With this said, some lenders will continue to work with debtors even if there is no reaffirmation agreement. In regards to second mortgages, I would strongly encourage clients not to sign a reaffirmation agreement on a second mortgage. There is generally no benefit to signing a reaffirmation agreement on a second mortgage.

You need to keep in mind that different lenders treat loan modifications post-bankruptcy discharge differently. The Home Affordable Modification Program (HAMP) guidelines may allow modification at the servicer’s discretion but some lenders have other policies against any modifications post-bankruptcy. Each case is different, and the results can vary from loan to loan and lender to lender. If you are thinking about bankruptcy you may want to contact your lender first to see what their policy is in regards to post-discharge options for their customers.

WILL THE CREDITOR CONTINUE TO REPORT TO THE CREDIT BUREAUS IF YOU REAFFIRM ON THE DEBT?

One of the most hotly debated topics I hear regarding reaffirmation agreements and credit is whether the lenders will report on your credit report if you reaffirm on a debt.  There is no provision of the Fair Credit Reporting Act, nor the bankruptcy code, which imposes an affirmative duty upon any creditor to make reports to the credit bureaus.  This is true, even in cases that don’t involve a bankruptcy case.  Under FCRA, creditors are only obligated to make accurate reports.  There is no authority to compel them to make a report at all.  Failure to report payments does not constitute a violation of the discharge injunction.

If the only reason you are reaffirming your debt is to have it report on your credit report then don’t reaffirm the debt.  You will be provided with credit offers immediately after you get out of your case and can start re-building your credit.  While many lenders will report post-petition payments to your credit, remember that they are not required to do so.

If you have any questions and reaffirming debt or bankruptcy in general, please feel free to contact our office at [email protected] or 404-889-8663

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