In a previous post, we had advised how it has long been Doan Law’s practice to not execute reaffirmation agreements except in very limited circumstances. Reaffirmation agreements are harmful since they recreate personal liability on dischargeable debt, defeating the primary purpose of filing Bankruptcy in the first place. Indeed, Bankruptcy Judge Mann recently used sanctions against an attorney to void a reaffirmation agreement with Wells Fargo finding the reaffirmation agreement was entirely unnecessary and failed to account for the debtor’s best interest. The attorney mistakenly thought the reaffirmation agreement was required to prevent a repossession and improve credit. HE WAS WRONG. Wells Fargo, like practically all other lenders except Ford and Chrysler, will not repossess a vehicle solely for filing Bankruptcy. Likewise, the reaffirmation agreement was held not to improve his credit. The same policies against reaffirmation agreements applies to Mortgages and other secured accounts as well. As long as the accounts remain current, no reaffirmation agreements are necessary in 99% of cases.
Notwithstanding, Doan Law will execute reaffirmation agreements in the following limited two (2) instances.
- Credit Unions: If you fail to execute a reaffirmation agreement where the credit union is the lender, they will close all your accounts with them. Thus, in most cases we typically advise our clients to simply bank at another credit union. However, for those clients with equity in their vehicles, a positive monthly budget, no other debts with the credit union, and who are certain they will pay off their vehicle without any difficulty, we will allow a reaffirmation agreement. Unlike other lenders, credit union reaffirmation agreements also do not require any Court Hearings.
- Ford and Chrysler: If your lender is Ford or Chrysler and you do not execute a reaffirmation agreement, they will repossess your vehicle even if you are current. Their system of FEAR has created an additional profit revenue you can read about here. Therefore, we usually recommend you surrender the vehicle instead and obtain bankruptcy financing on a new car thru dealerships such as Auto City. Such a practice improves credit with installment credit reporting, provides new transportation, and usually provides better financing terms. In limited situations, we will create an “unenforceable reaffirmation agreement” to avoid repossession with the intentional purpose of seeking Court Denial. Essentially, we tell the Court the reaffirmation agreement is not in the client’s best interest and causes an undo hardship. If properly done, the Court will deny the reaffirmation agreement, but enter an order prohibiting repossession.
Bottom line, reaffirmation agreements are frowned upon and rarely necessary. Thus, Doan Law will only forward reaffirmation agreements to our clients for consideration in very limited circumstances.
Written by Michael G. Doan– Owner of the Oceanside Bankruptcy Attorney Office, Michael also manages his business and is a highly skilled Bankruptcy Attorney with over 25 years of experience. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California.