Reaffirmation Agreements (RAs) are normally received when you have a secured debt. A “secured” debt is a debt that gives the creditor the right to take back the property (called the “security” or “collateral”) if you don’t make your payments on time. Examples of secured debts are first and second mortgages, car loans, and sometimes large TV or jewelry loans.
When It Might Be A Good Idea To Sign a First Mortgage RA?
Signing the RA will allow the mortgage creditor to report your good (and bad) future payment history to the credit reporting agencies. Without reaffirming the debt, your mortgage company will not report the fact that you are making payments on time.
You might be able to negotiate a beneficial change in the terms of your mortgage including:
- Putting past-due payments at the end of the contact;
- Changing the amount of your monthly contract payment;
- Changing the interest rate;
- Changing the total remaining balance due on the loan; and/or
- Whatever else can be negotiated with the creditor.
Some mortgage creditors won’t allow you to renegotiate a future loan default if you have not signed a RA in your bankruptcy.
When It Might Be A Bad Idea To Sign A Reaffirmation Agreement?
Under current law, there is little present “downside” in reaffirming a FIRST mortgage. Yes, if an RA is approved, you will again be personally obligated on the loan. However, if the creditor later forecloses on the mortgage (nonjudicial foreclosure), there is generally not a balance due that you would have to pay (unlike with a car or a second mortgage).
What Are Your Options With The Reaffirmation Agreement?
Option 1 – Keep Paying Without Signing the Agreement. Unlike a RA concerning personal property such as a car, you do NOT have to sign a RA to keep your home. All you have to do is just keep making the payments as usual. They CANNOT foreclose just because you did not sign the RA. You should, however, send them a letter requesting they continue to send you statements. Some creditor will not send monthly statements if you do not reaffirm and/or request that they send statements.
Option 2 – Negotiate Better Terms in Exchange for Signing the Agreement. In order to get you personally ‘back on the hook’ for the debt, the creditor will sometimes offer you better terms to entice you into signing an RA and again becoming personally obligated on the debt. So, you can try to negotiate with the creditor to improve the terms of your mortgage. You might be able to reduce the interest rate, reduce the balance due, reduce the monthly payment or have your account declared “current.”
Note: In order for a RA to be valid, it must be filed with the court before 60 days after your 341 Meeting (about 85 days after you case is filed).
Option 3 – Seek Office Review. If you can afford the proposed payment and it otherwise makes sense to reaffirm the debt, then we will agree to sign it (if needed). However, if your budget does not show you can afford the RA’s proposed payment, we CANNOT agree to approve the RA. In that case, if you want to reaffirm the debt anyway, you need to ask the court (see Option 4).
Option 4 – Seek Court Approval. You may ask the court to approve the agreement on your own.
HOWEVER, the Judge has advised he will generally NOT sign ANY Reaffirmation Agreement for any reason given his experience that creditors do not take adverse action for failure to sign. Again, you do NOT have to sign an RA for real property.
If you still want to ask the Court to approve an RA, you need to:
1. Sign the Reaffirmation Agreement (both you and the creditor)
2. Mail it to the court (you or the creditor, with both parties’ signatures) at:
United States Bankruptcy Court
1717 Pacific Avenue
Tacoma, WA 98402
3. Call the court at 253-882-3900 and ask them to “set a hearing to approve the reaffirmation agreement” for the creditor.
4. Appear at the hearing and be prepared to explain to the Judge how you can afford the payment and why you feel you need to keep the property. The hearing will be in the same building you had the 341 hearing in Vancouver and will normally take no more than 5 minutes. But, again, the court REJECTS most agreements.
Option 5 – Let them Foreclose (if they so choose). If you don’t want to keep the home, there is no need to sign the agreement or keep making payments. At some point the will likely foreclose. Generally, you have 20 days to move out once a foreclosure sale occurs. Note: Because you did not reaffirm the debt, you will not be required to pay any balance on the loan because it was discharged in your bankruptcy.
In sum, you first have to decide if you want to keep the home that secures the debt. Then you will need to pick one of the following options:
- Ask us to review and approve the agreement;
- Ask the court to review and approve the agreement (not normally a good idea);
- Not sign the RA, and just keep making payments;
- Not sign the RA, stop making payments and understand that they still have a lien on the home that must be dealt with IF you want to keep or sell the home; or
- Let them foreclose if they choose to do so.
You Have a Limited Time to Have the Reaffirmation Agreement Approved.
Finally, please understand that for a Reaffirmation Agreement to be approved, it must be filed or court approval requested by no later than about the 45th day after you had your bankruptcy hearing with the trustee (the Section 341 meeting). We have no control over when (or if) a creditor sends us a Reaffirmation Agreement. Therefore, you may need to hurry if you want the agreement approved. Please let us know if we may be of further assistance.
We hope you find this information to be helpful. Please let us know if you have any further questions or you have any ideas on how we can make this form better.