When you file for bankruptcy, all your liabilities are listed and are to be included in the bankruptcy discharge thus relieving you of your liabilities on the loans. However, in Florida, you have some alternative choices when you are dealing with a secured loan or loans. Secured loans are loans where you have collateral or property that has been financed; for example, an auto loan or home mortgage loan. With a secured loan you would be deciding whether you want to retain the collateral or property.
Generally speaking, when filing for bankruptcy, you are to choose one (1) of the following options as it relates to secured loans:
- File for bankruptcy and then return the property thus getting rid of the associated debt in your bankruptcy discharge.
- File for bankruptcy, and then keep the property by signing a Reaffirmation Agreement. This will require you to continue to make your payments like you did prior to filing for bankruptcy, and thus staying liable for the associated debt.
- File for bankruptcy, and keep the collateral or property by redeeming or paying the whole market value of the property in cash. The cash is typically required to be paid in full within thirty (30) days of the redemption order. Because of that fact, this option is rarely used. It usually only makes sense wherein a person filing owes much more on a piece of property than that what is owed, AND that person has access to cash which will allow that person to then turn around and pay off the value of the property. Any deficiency left over after the market value is paid would be wiped out in the filer’s bankruptcy discharge.
There is some background information you need to know regarding reaffirming a debt. Reaffirming a debt essentially reestablishes your liability on a secured loan after filing a bankruptcy. Once the agreement is signed by you, signed by the creditor, filed with the Court, and approved by the Judge, you will again liable for the loan. If you ever default, the property can be seized and you CAN be sued for any balance owed.
Pros and Cons to reaffirming or not reaffirming
If you reaffirm the debt, the creditor cannot come get the property unless you are in default. You have the same entitlements as an account holder, as if you never filed for bankruptcy. Therefore, in the future, you can negotiate a trade in of the collateral or property. Additionally, you should not lose access to all regular monthly billing statements and online access to the loan account.
Reminder: As stated above, merely signing and filing the reaffirmation agreement does not mean that you have legally reaffirmed the debt. The Court must ratify the reaffirmation agreement. In so doing, the Court must be convinced that it is in your best interest to remain liable on the particular loan. Or the Court must be convinced that the collateral or property is worth remaining liable on the loan secured to it.
If you do not reaffirm the debt, or if the Judge does not approve your reaffirmation agreement, then it depends on the financial institution whether the creditor will come pick up the property. Either way, you can NEVER be sued for any balance owed on that account if you were to ever default on the loan or if the property is seized.
Here is a basic “unspoken fourth rule;” that many times my clients are able to retain their collateral or property even if a secured loan is not reaffirmed. The general term is called “retain and pay.” Retain and pay means simply that even if you have filed for bankruptcy and you DO NOT have an approved reaffirmation agreement filed with the court, that you can retain the property as long as you make timely monthly payments.
Most creditors are not aggressive and don’t force a reaffirmation by threatening seizure of property due to lack of reaffirmation. Therefore, the retain and pay scenario is quite common in bankruptcy filings. However, there can be some issues which may arise in the future. For example, you may not be able to trade in a vehicle or refinance real property through the same financial institution. But, you would remain the titled owner of the collateral or property so if you were to pay off the loan in its entirety, then you would be able to obtain your title to the property. Retain and pay also does NOT prevent any future sale of the collateral or property. In rare circumstances, those who are on retain and pay may not have regular monthly access to information on the account, such as billing statements or online access.
Reminder: The option of retain and pay varies from financial institution to financial institution. The retain and pay option is not a guaranteed option. It is important that once you have filed for bankruptcy that you are prepared to sit down with your bankruptcy attorney and go over your options based upon your specific facts in your case. At Tudhope Law, the firm includes this assistance, and will go the extra mile to assist you with your decision. Call our Orlando bankruptcy attorney at (407) 969-0044 or fill out the online form located on this page and we will contact you shortly.