A reaffirmation agreement in bankruptcy is a new contract signed between you and a lender that reaffirms your debt and personal liability for the obligation. Such an agreement is usually executed for secure property such as an automobile, a boat, a recreational vehicle (such as a motor home) or an airplane. Before signing an agreement of this type, it is a good idea to have it checked over by your attorney as it is a binding legal document. The reaffirmation agreement must also be approved by the court. You can revoke it within 60 days after signing.

When must a reaffirmation agreement be signed?

The Bankruptcy Reform Act of 2005 states that any reaffirmation agreement(s) must be entered into prior to the filing of a discharge in bankruptcy and before the debtor actually receives the many disclosures required from his creditor. The document must also be approved by the court and not rescinded by the debtor prior to the discharge being filed. The court can also refuse to sign the reaffirmation agreement if it is of the opinion that the debtor cannot afford the payments called for under its terms.

Some creditors believe that the new 2005 bankruptcy law requires that a debtor sign a reaffirmation agreement if they want to retain the vehicle. However § 524(c) states that any obligation must be ‘enforceable under applicable non-bankruptcy laws, whether or not such a debt is waived.” As a result, if the debtor is current on his payments, keeps his vehicle insured and still refuses to sign a reaffirmation agreement, there appears no default that is enforceable under non-bankruptcy laws. Moreover, most bankruptcy judges are anything but eager to sign such an agreement if the debtor can’t or doesn’t want to afford the extra payment. Neither would most attorneys. Thus, the smart debtor doesn’t sign a reaffirmation agreement unless it includes better terms on a new contract and he is certainly permitted to do so.

The best advice

As a debtor, there seems little risk in signing a reaffirmation agreement provided that you feel you really need the property (such as a car to get you to and from a job) and unless you know you can’t afford the payment. Nevertheless, you have nothing to lose if you try to renegotiate your contract before you sign and don’t forget that if you’ve had the property for some time, its current value is less. The lender will very likely go along with your suggestions because it is to his advantage financially.

In the end, whether or not you sign a reaffirmation agreement comes down to how badly you want the property and whether or not you can afford to continue the monthly payments. If you need the property and the money is there, go ahead and sign. If not, let the property go and start over to rebuild your financial status with a really clean slate. Only you can make an informed decision.

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You should try to avoid Bankruptcy at all costs!

I'm 300K in debt. Gulp. I'm 24 and day traded away a fortune. Now I'm trying to crawl back to zero. Why not subscribe to my RSS feed and join me on this journey. You can also subscribe via e-mail. I appreciate tips and feedback! ~ DebtKid

A Chapter 13 bankruptcy, also referred to as ‘reorganization’, does not discharge your debts as a Chapter 7 does. Instead, it provides you with an opportunity to settle amounts past due through monthly payments made over time in addition to your regular monthly payments. Chapter 13 is normally utilized by people who have suffered a catastrophic financial event such as a sudden job loss or major family illness. It is used by both individuals and businesses and does not negatively impact credit to the degree that a Chapter 7 filing does, because it demonstrates to creditors that you are willing to pay your debts despite the problems.

What Must a Debtor (filer) Do?

Prior to filing the Chapter 13 action, you must complete a U.S. Trustee approved credit counseling briefing. Once completed, a certificate of completion must be filed with your petition. Your case really begins when your attorney files the petition in federal bankruptcy court. When a Chapter 13 action is filed, it places a ‘stay’ in effect under 11 U.S.C §§ 362 that prohibits your creditors from harassing you or attempting further collection activities. A notice of your filing will be sent to the entire list of creditors you provided within fifteen (15) days of filing.

The Chapter 13 Timeline

As previously stated, your case begins on the date your attorney files your petition with the federal courts. Approximately 15 days later, the court issues a notice of commencement of the case to all your creditors. This notifies them that the ‘stay’ is in effect and sets the date for a 341 meeting of creditors before a court-appointed trustee. It also informs your creditors of the final date for filing any complaints or objections with the court (usually 30 days). Your planned re-payment schedule must be filed within fifteen (15) days of filing unless your attorney included it with the original petition. Approximately 20-40 days later, the 341 meeting of creditors is held. In most cases, few if any will actually attend unless the amount due is extremely large. You can expect to be discharged within 60-90 days after the 341 meeting date.

What Must You Do to Qualify for a Chapter 13?

In order to qualify for filing a Chapter 13 bankruptcy, the following must be shown:

• You must have a regular income that will permit you to make the pre-determined payments to the trustee in bankruptcy who will distribute funds to your creditors.

• You have to show that you have an adequate amount of disposable income so that you can make regular payments to the trustee AFTER covering your current living expenses.

• You must also show that your disposable income falls within the pre-set limits for both secured and un-secured debts. These limits are updated occasionally and your attorney will be up to date on what they are. In May 2007, these limits were $1-million for secured debts and $337,000 for unsecured debts.

Some important Cautions…

For either Chapter 13 or Chapter 7 bankruptcies, you should be aware that any assets transferred to family members, friends or some business associates will be considered as ‘preferential’ and disallowed by the court. The court may also dismiss your petition altogether if it believes that transfers of ownership or sales of assets were done to defraud your creditors.

You also cannot file a bankruptcy petition if you had a previous petition dismissed within the past 6 months of this filing.

You should try to avoid Bankruptcy at all costs!

A Chapter 7 bankruptcy is a legal proceeding in federal bankruptcy court which can release you from any necessity to ever paying your debts. In doing this, however, you do stand to lose any non-exempt assets you may have (stocks, bonds, cash in savings accounts, valuable artwork, etc) to the trustee-in-bankruptcy appointed by the court. These are ordinarily sold and distributed amongst your creditors. This includes any income tax refunds that are due to you. Fortunately, you are permitted to retain some important assets that the court considers exempt under federal law. These include your house, your car, clothing, personal items like furniture and house ware, etc. The usual cost due to the court for filing is just under $300.00.

What the Debtor (filer) Must Do

First you and your attorney must attest to the fact that you understand that you are filing factual information and also that data being provided is warranted under existing federal law. This simply means that you understand both the state and federal laws that apply to filing under Chapter7. The required forms under §521 and the Means Test in Official Form B22A (which determines your ability to pay certain costs) and numerous other documents are complex for any layman at law and should be handled by an attorney. Filing a bankruptcy has become considerably more complicated since the Bankruptcy Reform Act 0f 2005 became law. It includes, among other things, the necessity that the debtor attends one class or credit briefing before filing. Today, attorney’s fees for filing a Chapter 7 range from about $1275.00 for a simple filing to as much as $2,500.00 for complex cases. Anyone who attempts to handle his or her own bankruptcy today can reasonably be said to have had a ‘fool for an attorney.’ These filings are just too complex for a non-lawyer to handle properly.

The Chapter 7 Timeline

In most cases, you can expect to be adjudicated a bankrupt within 4-6 months from the date your action is filed in the federal bankruptcy court. While there are some important things to consider and do prior to the actual filing, your case really begins on the day you file it with the court. This is the day that the ‘automatic stay’ (temporary injunction) goes into effect. It prevents your creditors from contacting you, harassing you or dunning you for payment in any way. The next important date is approximately 20-40 days after filing. This is the 341 meeting of creditors with the court-appointed trustee.

In most cases, unless the debt is very large, your creditors will probably not even show up. You (and your attorney) must be present and be sure to bring your social security card and a photo ID. If the trustee requests any additional documents, be certain that you supply them as quickly as possible. You can expect to be discharged within 60-90 days after the meeting of creditors.

What Happens to My Secured Property?

Certain property that is secured such as your house and a financed car, boat or RV, may be repossessed by the lender and cannot be discharged in a Chapter 7 action. The thing to do here is ask each lender to accept a ‘reaffirmation’ of your debt. This means that you agree, in writing, to continue making the payments after you are adjudicated a bankrupt. Most lenders are happy to agree, since you have discharged your other obligations and cannot file bankruptcy again for seven years.

You should try to avoid Bankruptcy at all costs!

As a general rule, it is best to consider bankruptcy as the least desirable option available to you when your finances have gotten out of control. However, if your financial situation has been going downhill for an extended period of time, your credit standing is probably so bad that filing for bankruptcy really won’t do much to make it worse, with one exception: A bankruptcy remains on your credit report for ten (10) long years. Nonetheless, creditors will know that once you file bankruptcy, you cannot do so again for 7 years.

When your finances reach the point where you consider them terminal, bankruptcy will provide relief in the sense that it will halt the never-ending dunning letters and telephone calls from creditors and collection agencies. The effect that it will have on your credit standing depends in part on which type of bankruptcy you file.

Chapter 13 Bankruptcy credit issues

Chapter 13 bankruptcy, also referred to as reorganization, does not discharge your obligations. What it does do, is permit you to ‘work out’ a plan for paying them off in amounts and timeframes that you can manage. Chapter 13 is designed to provide a solution for people who have suffered a short-term financial problem due to a job loss, sudden catastrophic illness, etc. If you still have a regular income and wish to avoid the stigma of a Chapter 7, a Chapter 13 filing can give you the time you need to correct your problem. This filing will combine an automatic ‘stay’ with three to five years to catch up on your backlog while you keep current on your ongoing monthly expenses. You will have to complete a U.S. Trustee-approved credit counseling briefing with your petition in order to have the court place a stay or hold on a foreclosure or repossessions. Your creditors will receive a notice from the court that stops their collection efforts and dunning in approximately fifteen (15) days after you file your petition.

A Chapter 13 bankruptcy will have a negative effect on your credit report, but it does show your willingness to pay your debts rather than to discharge them. That should help you obtain new credit within a year or so.

Chapter 7 Bankruptcy credit issues

From a credit standpoint, Chapter 7 adjudication is the blackest mark you can have on your credit standing. While it absolves you of the debts you owe (except for monies owed in child support & alimony or unpaid income taxes), it makes obtaining new loans or credit cards extremely unlikely for at least a year or two and perhaps longer. There are some exceptions. Federal student loans, for example, are not granted based upon credit history or income. In fact, federal law prohibits discriminating against applicants based upon these factors.

Getting New Consumer Credit Will Be Difficult After Either Bankruptcy

You may be able to obtain a home loan beginning two years after being discharged in Chapter 7, or as soon as one year after filing a Chapter 13. FHA and VA-insured mortgage loans can be had as early as one year after filing either bankruptcy petition. Normal consumer credit, such as revolving charge accounts or credit cards, will be much more difficult to secure, as they are determined by the credit standards of the individual lenders.

Delete Bankruptcy from your credit report (legally!)

If you’re credit has some issues, and you want results a little faster, you might check out a service like Lexington Law. It’s not going to be free, but I’ve seen results that are pretty amazing. They have even been able to get Bankruptcies removed from people’s credit. I’m planning on trying them out in a few months.

It costs money to declare bankruptcy. Seems backwards, doesn’t it? You have no money, which is why you’re filing for bankruptcy, yet it costs money to file bankruptcy. There really is not such thing as a free lunch! (and Bankruptcy is no free lunch, let me tell you)

Bankruptcy Costs

The bankruptcy courts have filing fees. Chapter 7’s filing fee is $299, Chapter 13’s filing fee is $274.

Attorney Fees

That’s not so bad, right? Well, hold your horses, that doesn’t include a lawyer! Look, I had enough trouble just filling out the paperwork that my lawyer gave me. I can’t imagine trying to fill out and gather all the necessary paperwork and deal with the trustee all by myself.

When you’re thinking about Bankruptcy, it’s likely you’re very stressed (I know I was…heck, I still am). Most lawyers will have an option to pay their fee in installments. If they don’t….move on.

That said, I wouldn’t recommend the cheapest lawyer in your area either. I’d look for perhaps newly on their own bankruptcy attorney. Often new lawyers will work at a large firm out of Law School for a few years, then strike out on their own practice.

My experience with my lawyer was that although she was younger, she was very experienced (had worked at a large firm for a few years), but not outrageously expensive because her own practice was fairly new. Obviously this is just my two cents, most Bankruptcy attorneys will give you a free initial meeting. Setup 3-4 in a day, and see who you feel most comfortable working with and who is willing to work with your financial situation.

You’re going to end up paying anywhere from $700-$2000 to file Chapter 7, depending on what area of the country you are in. In my opinion having a lawyer severely lowered my stress during this whole process.

You should try to avoid Bankruptcy at all costs!

I had my “meeting of creditors” today in US bankruptcy court.

One word to describe the whole thing?

Awkward

You’re in this room with a dozen other “debtors” and the awkwardness is as thick as pea soup. I think my meeting with the trustee went fine, in fact, it was not nearly as stressful as I thought it might be. (more…)

Sometimes I feel like the most screwed up 24 year old on the planet. I finished my bankrupcty paperwork last week, and I honestly haven’t thought about it since then.

A Bankruptcy is supposed to be like somewhere in the top 5 most traumatic life events right? I swear I read that somewhere, maybe I’m nuts. Anyway…

I’ve screwed up so royally in the past 3 years that this just feels like another step. Not a turning point, but just another step. Stopping my trading addiction was a step, avoiding the foreclosure on the house (with a short sale) was a step, getting an apartment so I wasn’t sleeping on the floor of my office was a step, this BK is another step.

Steps, steps, steps. Those 4 I listed above all happened within the last 8 months. And I see at least another 4 pretty big steps that are going to happen in the next 8 months.

Stepping is tiring. But I will keep doing it! I have too!

I finally got all my bankruptcy paperwork finished last week and mailed off to the lawyer I’ve been working with. I could have swore I remembered the fee being $1,000 when we had a meeting a few months ago.

It’s $1500 + $299 Filing Fee.

Yikes. I have a family member who has offered to cover 1K of the fee (to be paid back someday in the future. Not my favorite option, but I can’t afford $1800 right now and I can’t afford to put off the BK any longer either. So, crap).

The lawyer is very experienced, and I had quite a bit of trouble with all the paperwork that they requested. Mostly due to me stupidly not keeping good books last year and earlier this year for my business.

I know there are cheaper Ch. 7 lawyers in Seattle, but unless the fee agreement (which I haven’t signed yet. It should show up tomorrow) is crazy, I think I’ll just take the family money, pony up some of my own and just get this over with.

This whole crazy mess is really messing with my business confidence at the moment. It’s fine that it messes with me personally, that’s to be expected. But it’s starting to spill over into my business, which is not cool.

You should try to avoid Bankruptcy at all costs!

A ton is going on right now for me business wise. (sadly, not a ton of cash going on though!).

My plan A project will be launching very soon, and I’ll have a good idea within 6 weeks if its going to fly or not. I will be shifting some of my time to working on it in the coming months. It’s one of those things that’s either going to be a hit and huge (and generate 20K a month…think *software*ish), or not get adopted and just languish.We’ll see….

Thowing In The Towel

I’m giving myself through the end of this year to really hit a new level in my businesses. I’ve been stuck at this point of just scraping by (not to mention only being able to pay 1/4 of my current debt load) and I can’t take it much longer. If I had no debt at all, I’d have a comfortable lifestyle. But that isn’t the case and I’ve been working like a madman since January and it’s wearing me down. I think I can keep this pace up through Decemeber, but if significant cash isn’t coming in by Dec 31st 2007:

1. I’ll for sure finish my personal bankruptcy
2. I’ll bankrupt my business or sell it if possible
3. Get A W-2 Sales Job somewhere…

I’m obviously hoping I can pull of this miracle turnaround. I don’t know…we’ll see. I haven’t gotten sued……yet. I’m still here…..for now.

To me my biggest issue remains the money that I owe to my mother. I could legitimately BK both myself and my business. It would be shameful, and a black mark and my investors would be pissed, but I’d be OK. But the 160K I owe Mom…well, that’s never going away.

But, if I had to get a normal job (with some sort of commission involved…),heck 40 hours a week sounds like cake. It might take me alot longer to pay back Mom, but I gotta do what I gotta do.

So, here’s to 2007. Praying I finish strong…

DebtKid

Whew. Finally a minute to breath.

Inhale. Exhale.

Inhale the good. Exhale the stress….

Trip is going well. 1 sale already and I have a decent chance at closing 2 more tomorrow. I’m in San Francisco now after working Sacramento yesterday.

I got pretty much the cheapest non-hostel hotel in San Francisco and it still seems outrageous. I had a budget of $600 for this whole trip (lodging/food/gas/donuts). I’m gonna go $100 over it looks like.

I haven’t heard anything official about winning the $1K bloghunt contest (UPDATE: I did win!), so we’ll wait and see. I think getting my Chapter 7 wrapped up and using the 1K for that is the best move. Getting the bankruptcy filed is my next big step on the debt side of things.

I got stuck on the big bridge getting into the city. Didn’t know it cost $4! (I had no cash on me) Some nice soul behind me got fed up with waiting for me digging around my car for $4 (I came up with about $2 in change) and paid the rest of my toll. So, thank you nice lady! I felt so stupid though. It’s my first time here!

San Fran is big

The city is huge! It has a similar feel to Seattle, though not as clean. I wish I had time to walk around a bit and take some pictures, but I just don’t. I need to move my car by 7am and then work San Jose and Oakland tomorrow. I’ll finish with San Fran on Friday and then start driving back home.

Fun, fun, fun. Sometimes.

Actually, this is hard. I drove 10 hours strait from Portland to Sac-town. I bought a frozen dinner for tonight and I have no microwave. I do have a really nice bed though, so I’m excited about that. I knew I had little chance on the apartment, but its still no good. Even if I could afford another place, I had no chance of passing anytime of screening. That limits my options to sublets that won’t do a credit check, or coming up with 6 months cash or something and asking for no tenant check. If this sales trip gets me 5 or more sales though….I’ll probably be traveling every other week anyway. So, guess I’ll just keep staying at the office and get hotel rooms every other week. That’s not too bad!

While I think this project has some legs, I’m still worried about a lot of things. The bankruptcy, the business debt that still needs to be worked on, my mom….etc. I know I’m going to be OK one way or the other, but I worry a bit what I will look like it 2 years… (not physically look like). OK, I’m ranting now, I just need to finish my carrots and go to bed.

On my weight note:

Speaking of my weight, I’m down to 169 (I was 176 before I got sick). I feel good though, but I don’t want to lose anymore weight.