Monday, May 9th, 2011
Most people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans. But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?
This past March, I discussed redemption of property in Chapter 7. Redemption of property is a viable option but it is far less common than "reaffirmation" of debt.
Why Do You Need to Reaffirm?
Secured loans actually contain two different kinds of obligations. On one hand, you obligate yourself personally to pay a particular debt. This is typically in the form of a promissory note. The second layer of obligation ties the specific item of property to the loan. This is called a security agreement.
When you file a Chapter 7 and a discharge is issued by the judge, your personal liability on your secured debt is extinguished. This is why payments on a non-reaffirmed car loan or home loan will not be reflected on your credit reports. You have no personal obligation to pay. However, a Chapter 7 discharge does not extinguish the lender's security interest against property. This is why a vehicle lender can repossess or a mortgage company may foreclose to recover property. In such a situation you would not have any personal liability for any deficiency amount.
A reaffirmation serves two main purposes:
- you will have the certainty of knowing that you are once again in a contractual relationship with the lender. If you do not reaffirm, you could wake up one day to find that your vehicle has been repossessed or that you are being foreclosed upon.
- secondly, payments on a reaffirmed debt will appear as positive information on your credit reports. This means that your credit score will recover more quickly
Can You Negotiate Better Terms in a Reaffirmation?
Because a reaffirmation agreement is a new contract between you and your lender, you absolutely can negotiate different terms. I have negotiated reduced payments, lower interest rates and reduced balances on furniture, electronics, and vehicles. I have also negotiated lower payments on 2nd and 3rd mortgages.
It has been my experience that some lenders will just not play ball. They would rather incur the expense of recovering, storing and reselling a used item. I think this attitude of "we do not negotiate with debtors" is silly and counterproductive, but some lenders take this position (I suspect that some of these lenders do not have the staff or protocol for handling a negotiated debt).
On the other hand, many lenders will agree to a deal with terms a lot better than the original contract. But you do have to ask, and, of course, if you agree to any terms, you must live up to the deal. Reaffirmation agreements can be canceled by the debtor within 60 days after the agreement is entered, or the case is closed, whichever comes first.
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Friday, February 5th, 2010
There are many reasons that bankruptcy filing rates are so high. Clearly an unexpected job loss or reduction in earnings can lead many honest, hardworking people into a bankruptcy lawyer's office. When a job loss is coupled with a divorce, I think that the likelihood of bankruptcy by husband or wife goes up exponentially.
I recently read a column written by attorney John Mayoue, a divorce lawyer here in Atlanta who is known for his representation of celebrities and other high profile clients. John notes that in the domestic relations legal community, Atlanta is known as the "divorce belt." In the bankruptcy lawyer community, Atlanta is known for having one of the highest bankruptcy filing rates per capita. I do not think that this is a coincidence.
Just as an ethical bankruptcy lawyer will advise you to search for alternatives to Chapter 7 or Chapter 13, a thoughtful family law attorney will advise you to search for alternatives to divorce. Bankruptcy or divorce may be inevitable, but when you seek legal counsel, look for a lawyer who does not offer "one size fits all" solutions and recommends alternatives – this would be a good sign that you are talking with a lawyer who has your best interests at heart.
John was gracious enough to give me permission to reprint his thoughtful article about why couples struggling in their marriages ought to consider alternatives to divorce. I recommend that you take his message to heart.
Divorce Lawyer John Mayoue Offers Advice to Couples Contemplating Divorce
The divorce rates in the United States are some of the highest in the world. Increased financial pressure brought on by the current economy is fueling the fire for marriages already in jeopardy, and the rapidly increasing number of homeforeclosures further demonstrates the severe consequences these pressures can produce.
According to Atlanta, Georgia based divorce attorney John C. Mayoue, who has been counseling couples through divorce cases for more than thirty years, the approaching holiday season will cause these numbers to spike further and will also be a busy time for lawyers specializing in divorce cases, as the holiday season often proves to be a breaking point for marriages in crisis.
“During the holidays, people’s pent-up thoughts about relationships and careers and where they are with life become intensified,” Mayoue says. “In December, for example, we have the highest number of suicides, divorce filings and bankruptcies of any month. It's just a very difficult time for people.”
Although our society makes divorce seem to be an easy and acceptable way out for couples who aren’t quite happy in their situation, Mayoue cautions couples not to be too hasty to start the divorce process. Divorces that make it to trial are painful and embarrassing, and the results are often not fair for both parties involved. If you are considering divorce, Mayoue suggest taking the following steps first.
1. Try to work out your differences
Ask yourself why you want a divorce. Are you just responding to life’s pressures? Are you looking for a way out of a stressful situation and not just your marriage? Or do you have legitimate concerns that are truly irreconcilable?
Ask yourself if this is your only option. Have you made every effort to communicate with your spouse and work things out together? Have you tried counseling or outside help?
More importantly, consider all of the consequences of divorce. Are there children involved? How will this affect them? Would the divorce be the best solution for everyone in the family or only the adults involved? Will the family be financially ruined by the process in the forms of home foreclosure, credit crises or worse?
Before you drag your family through a process that can make existing rifts even deeper and harder to overcome, make sure that you really want to go through with this life changing and emotionally taxing process.
2. If you can’t find a resolution, try to settle out of court
If at all possible, try to settle your case outside of court with the help of your attorneys. When you do take your case to trial, you lose control over important aspects of your case to the decision of the judge or jury, depending on your state. This can lead to painful custody rulings, alimony or settlement decisions and more.
Even if you feel like you are right in your claims, in a courtroom, your case is only as solid as the evidence you can produce. Judges tend to have biases and not all states will send divorce cases to a jury trial. Truth may not always win out, and oftentimes these proceedings become incredibly painful and embarrassing.
“I am always going to make every reasonable effort to get a case settled first,” Mayoue says, “because settlement is something that the parties can control. They can basically control things such as custody, visitation and the allocation of assets and debts. And the courtroom is a risky environment for anyone.”
3. Educate yourself before going to trial
Before you do anything, make sure to get educated. Use your attorney’s knowledge to understand the proceedings, possible outcomes and unexpected or painful events that you need to be prepared for.
“Divorce is hell for the vast majority of people,” Mayoue says. “People get angry, people get lost in the process of the courts and they lose everything. This can be avoided if they are calm and are educated about the process.”
Mayoue’s law practice is based in Atlanta, in the heart of the new “divorce belt,” a name which the South has recently earned by having the highest divorce rates in the country. Given the environment in which he operates, he says that his goals as a divorce attorney are to educate people about their options and the process and to help people who have thoroughly thought through their options and have decided divorce is the only answer for them.
“I really do think that we lawyers have an obligation to educate the public,” Mayoue says, “and it seems to me to be not very good consumerism to walk into a lawyer's office knowing absolutely nothing, before paying someone several hundred dollars. I've always found it peculiar that people do not get educated in a legal matter that affects 50-plus percent of all people who get married. Yet if you had an illness, you would certainly read up about it, if you had a business you were interested in getting involved in, you would certainly read about it.”
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