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An Explanation of Reaffirmation in Bankruptcy Cases, and Why You DON'T WANT the Judge to Approve the Reaffirmation Agreement on Your Car

By Joseph McDaniel, Esq.

Reaffirmations are probably the single most confusing area in consumer bankruptcy law; and that's because the best technique for the debtor, if the debtor wants to keep a car that has a lien, is to check the box in your schedules that says you want to reaffirm, sign the reaffirmation agreement, and ship it back to the lender, and then the debtor appears in Court and hopes that the Judge DOES NOT approve the reaffirmation agreement.

Note that if the debtor's attorney signs the reaffirmation agreement, the Bankruptcy Judge will usually approve the reaffirmation without a hearing, and then if the debtor hits a rough patch and can't pay, the finance company will repossess the car and bang the debtor for a deficiency judgment, which will become a judgment lien on their house if they have one, and permit the creditor to garnish their wages when they have them.

And that's why consumer debtor attorneys who like their clients don't sign off on their automobile reaffirmation agreements. 

On the other hand, if the Judge does not approve the reaffirmation agreement, and the debtor subsequently defaults, there will be no deficiency judgment after a repossession.

In general, going through the motions of a reaffirmation agreement which is not approved by the Court gives you a result just like the pre-2005 "ridethrough". Nolo's Bankruptcy & Foreclosure Blog discusses the issues, and so do I in several previous posts.

And most of the Bankruptcy Judges in Arizona tend to simply vacate the reaffirmation hearings, so you can keep the car without being liable if you ultimately lose your job and are unable to make payments. 

And when I realized that was what was going on, I generated a video that discussed the "unexpected compassion":



Now, being a Bankruptcy Judge gives you vast discretion, and any of the Judges in Arizona can decide to do anything with a reaffirmation agreement that he or she wants to do.

So results may vary.

If you don't care in the slightest whether you'll be subject to a deficiency judgment if you have bad luck in the future, go ahead and tell your lawyer to sign off on the reaffirmation agreement; it'll save you a trip to Court. So you'll gain a little in convenience.

And by saving that trip to the Court, you'll be risking a deficiency judgment in the future.

Full post as published by Arizona Bankruptcy Attorney Blog on March 28, 2011 (boomark / email).