Tax Refunds in Bankuptcy

One of the hottest times of the year for a bankruptcy attorney is tax refund time. That’s because clients usually use their tax refunds to pay their attorney’s fees, both in Chapter 13 bankruptcy and in Chapter 7 bankruptcy.

Why Should I Use My Refund to Pay For My Bankruptcy?

The simple reason is that this is one of the best ways you can spend the money. Instead of going to the casino, or to the movies, you can potentially take your tax refund and discharge thousands of dollars of debt. No more credit card payments! All with one check.

Secondly, if your tax refund is substantial, lets say anything more than $4000 you may not be able to protect anything more than that amount with your Illinois Bankruptcy Wildcard Exemption, which is capped at $4000. The Wildcard Exemption protects any asset in your possession, including your furniture, what you have in the bank and even your television, but only up to $4000. This means that in a Chapter 7 bankruptcy the trustee could potentially seize your tax refund and distribute it to creditors. Which means it makes much more sense to pay your attorney with those funds, especially if its a sizable refund. You must carefully plan your bankruptcy exemptions with an experienced attorney to protect your tax refunds. I have seen bankruptcy trustees ask for debtors to turn over the entire refund check in the middle of the 341 meeting!

In a Chapter 13 tax refunds are now factored into the means test, which means that the amount you receive back as a refund is considered part of your income for Chapter 13 planning purposes. It also may still be considered an asset on the schedules, depending on when you file, how much it is, and how your trustee sees the facts of the case.

To speak with a knowledgeable Chicago Bankruptcy Attorney around tax time about your strategy to protect your refund call Attorney Steven Grace for a free consultation at 312-493-6912.

Short Sale or Foreclosure?

As a rule of thumb, especially if you’re looking to protect your credit, a short sale is better than letting a house go in foreclosure. This article will go into some of the pros and cons of each option.

What is a Short Sale and is it the right choice for me?

First of all the sale must be to a bona fide purchaser at arms length, that is someone who is not related to you who uses their own money to purchase the property. The buyer must be a completely disinterested party, it can’t be a relative or someone who buys the property on your behalf. The reason it is called a short sale, is because the purchase price is for less than what you owe, meaning the property is underwater, and you owe more than what it is worth. In most instances, these properties will be in foreclosure, and in a lot of instances a bank will not accept a short sale application unless you are in default and behind on your mortgage.

Short Sales vs. Foreclosure

There are a few benefits of a short sale vs a foreclosure including:

1. The short sale looks better on your credit report. Usually a short sale will report to your credit as settled for less than what is owed, which may even erase all prior missed payments. This is much better than a foreclosure judgement and auction showing in the public record section of your credit, not to mention all of the missed payments.

2. Release of deficiency – usually a completed short sale will release the seller from any residual amounts owed after the sale. If you sell the property for $30,000 less than what you owe the bank should release you for that remaining amount. In addition, the bank will usually pay all fees out of the proceeds, which include closing attorney fees, broker commissions, real estate taxes and closing costs. This means in many cases the short sale costs the seller nothing out of pocket.

The Cons of Short Sales

In many instances if your mortgage is already in default, there’s a good chance that there are other issues with your finances. Maybe you have credit card debt, maybe your car is facing repossession. If you are facing any of these issues, then a short sale will not help all that much, you are much better protecting all facets of your finances with a bankruptcy.

In addition, a bank will commonly request a seller contribution to release the deficiency. This means the bank will request either a lump sum payment or will request the seller to sign a note to the bank, which will require monthly payments up to a certain amount. This is very common, and as I said earlier if you have other financial issues, this will not help you. A bankruptcy will solve all of your issues, but a short sale just deals with the house, which makes no sense especially if you have to pay to get out of the mortgage.

If you would like to speak with a Chicago Foreclosure Attorney who has handled multiple shorts sales and bankruptcies call 312-493-6912 for a free consultation.

Consent Foreclosures in Illinois

In many instances a consent foreclosure is much better than a Deed-In-Lieu of Foreclosure, a Short Sale and even a bankruptcy.

What is a Consent Foreclosure

Illinois has a special statute that lays out the Consent Foreclosure Procedure, specifically it is 735 ILCS 5/15-1402 and it states:

(a) No Objection. In a foreclosure, the court shall enter a judgment satisfying the mortgage indebtedness by vesting absolute title to the mortgaged real estate in the mortgagee free and clear of all claims, liens (except liens of the United States of America which cannot be foreclosed without judicial sale) and interest of the mortgagor, including all rights of reinstatement and redemption, and of all rights of all other persons made parties in the foreclosure whose interests are subordinate to that of the mortgagee and all nonrecord claimants given notice in accordance with paragraph (2) of subsection (c) of Section 15-1502 if at any time before sale:

(1) the mortgagee offers, in connection with such a judgment, to waive any and all rights to a personal judgment for deficiency against the mortgagor and against all other persons liable for the indebtedness or other obligations secured by the mortgage;

(2) such offer is made either in the foreclosure complaint or by motion upon notice to all parties not in default;

(3) all mortgagors who then have an interest in the mortgaged real estate, by answer to the complaint, response to the motion or stipulation filed with the court expressly consent to the entry of such judgment;

(4) no other party, by answer or by response to the motion or stipulation, within the time allowed for such answer or response, objects to the entry of such judgment; and

(5) upon notice to all parties who have not previously been found in default for failure to appear, answer or otherwise plead.

This is full of large amounts of legal jargon, but the essence of this legal procedure is that you agree to waive all of your rights in the foreclosure process, agree to give the bank a judgment for foreclosure, and in return the bank agrees not to pursue you for a personal deficiency judgment after the foreclosure. This is very important as it protects the homeowner immensely.

What is a Personal Deficiency Judgment in a Foreclosure?

A deficiency judgement essentially what you owe after the bank has sold the house and taken its money, it is everything you owe leftover, the deficiency.

In order for a bank to take a home in foreclosure it must prove you owe it money and that you haven’t paid the mortgage. Once it has proven this, it gets what is called a judgment of foreclosure. In this judgment, the bank will include all unpaid principal and interest, attorney’s fees, and other miscellaneous costs. That is the judgement amount.

The bank can then set the house for auction. This foreclosure auction will take place at least 90 days after the judgment has been entered. The bank will set the minimum bid and other individuals from the public can bid on the property.

The difference between what the house sells for at auction and what is owed on the foreclosure judgement is what is called the deficiency, which in most instances is tens of thousands of dollars. Upon confirmation of sale, this deficiency can be entered into a memorandum of judgment, and this judgment once signed by a judge is immediately collectible against you personally.

So although you just lost your house in foreclosure, the bank can still chase you around in collection court for whatever amount is on that judgment. This seems unfair, but its the law, and it is my job to prevent this from happening.

As a side note, I would say in around 80% of all auctions the bank buys the house back. This is because either the minimum bid is too high or there are so few borrowers that can actually get the funds together to buy the property (auctions require full payment within 24 hours of sale), but its usually a combination of the two.

How Can a Consent Foreclosure Help Me?

If you are looking to get rid of a property, as part of a strategic default or otherwise, a consent foreclosure is an ideal practice for multiple reasons:

1. Speed – In order to do a consent foreclosure you must have an open foreclosure case, there must be a case number assigned, although you do no necessarily need to be served. But once the consent foreclosure process has been started it can be done in as fast as 60-90 days. Sometimes longer depending on other factors such as second liens and government interests.

2. Simplicity – A Consent Foreclosure is a much simpler process than a Deed-In-Lieu of Foreclosure or a Short Sale. And the reason is simple, there is much less paperwork involved. You don’t have to submit any bank statements, pay stubs and you don’t have to speak with the bank. All of the negotiations are done between the attorneys. In addition, by not having to submit bank statements or pay stubs you keep your finances away from the prying eyes of the bank. This gives high net worth individuals the ability to get rid of unprofitable properties in a simple and inexpensive manner. Not to mention, the bank waives any right to collect the deficiency judgment post foreclosure.

3. Immediate Recording – Once the Consent Foreclosure judgment is signed by the judge, the bank takes it to the Recorder of Deeds and records it, and this immediately takes the property out of your name. This is the fastest way to get a property out of your name which may be vacant, boarded up and just asking for code violations from the city. This gets rid of your property headaches immediately.

4. Tax Consequences – In many if not all instances I have encountered in my practice, upon completion of a consent foreclosure and the subsequent waiver of deficiency by the bank, the homeowner will not receive a 1099C for cancellation of debt. I understand the IRS may consider a foreclosure sale a cancellation of debt which may be taxable as income, but in most if not all circumstances homeowners do not receive these forms once tax times comes around. Regardless a good accountant will be able to get you out of this burden with the insolvency exception.

What are the downsides?

First of all, this probably reports on your credit as a completed foreclosure. It will probably hurt your credit more than a Short Sale or a Deed-In-Lieu. There are conflicting reports but supposedly a short sale will report to your credit as “debt settled for less than what is owed”, yet a consent foreclosure is technically a completed foreclosure which shows up in the public record section of the credit report.

If you have questions about your options regarding consent foreclosure call my office for a free phone consultation at 312-493-6912

How Do You Rebuild Credit After Bankruptcy?

This is probably one of the most common questions I get in my practice. People want to know whether or not a bankruptcy will permanently destroy your credit score and whether or not you’ll ever be able to get a credit card, a mortgage or a car loan after filing bankruptcy. The answer to that question is that you will be able to do all of these things as long as you take care to properly rebuild your credit.

Your Credit Score After Bankruptcy

For a large percentage of my clients (probably around 80%), their credit scores usually increase after they have received their bankruptcy discharge. To understand why, You first need to understand how credit scores work. A FICO Credit score is essentially an algorithm that takes into account multiple factors which determine your credit worthiness, and your ability to repay. Some of the factors that are taken into account are: payment history, lawsuits, accounts in collections, average payment amount, length of credit history, and other factors. Now, a large percentage of individuals who end up filing bankruptcy will usually already have late payments reporting on their credit as well as accounts in collections. This usually hurts your score. Now the reason that I say a large percentage of credit scores increase after bankruptcy discharge is because the discharge removes all of these items from your report. Your late payments are no longer reporting as late, and the collection accounts are removed. A bankruptcy will typically lower your credit score 100 points for a period of around 10 years, but that’s from the maximum score of 850. Once the late accounts are taken off after you have completed your bankruptcy this increases your score exponentially. I have had clients who had pre-negotiated the purchase of a car and were merely waiting on their discharge order to go and pick up the car. Lenders see you as less of a payment risk if you’ve discharged your credit card debt, they are happy to lend to someone with a stable income, and no debt.

Repairing Credit After Bankruptcy

The first thing I usually suggest is to get a credit card, and usually a secured credit card. You want something that will report on time payments to the credit bureaus. A secured credit card is basically a card where you put down a deposit to the card, and your credit limit is usually equivalent to the deposit. That way, if you miss a payment it is taken out of the deposit, its less of a risk for a lender. I have also read that if you are added as an authorized user on someone else’s credit card, then that can also report on time payments. Make sure that it will actually be reported, otherwise it won’t help. Another way to rebuild credit is to get a secured loan, usually a vehicle loan. As discussed above it is fairly easy to get a car loan these days, just make sure the interest rate is fair. And finally, a reaffirmed debt within your bankruptcy will also report on your credit, when on time payments are made. As I have said in other posts, reaffirmation is not usually a good idea, too much can go wrong, but this is the ONLY instance where it may make sense.

If you have questions about the bankruptcy process please contact Steven J. Grace at 312-493-6912 for a free phone consultation.

The End of an Era: Home Affordable Modification Program (HAMP) Ends

As of December 31st, 2016 the US Trasury’s Making Home Affordable Program or HAMP as most people call it will officially come to an end after seven fairly successful years. Born out of the Great Recession, the US Treasury unveiled this program to not only make save homes from foreclosure but to also prevent some houses from entering foreclosure altogether. HARP or Home Affordable Refinance Program, which helps homeowners to refinance their mortgages to a lower interest rate, was extended until September 30, 2017.

The main benefit to a Loan Modification under HAMP was that the Mortgage Servicers and Investors recieved an incentive from the Government for helping borrowers stay in their homes. In many instances, a HAMP modification was able to help borrowers who were struggling financially, mainly because of these incentive payments. It was estimated that in 2016 50% of all loan mods were under the HAMP program.

What Are My Options Now?

Well, there has always been what is called an “In House Loan Modification Program” or a “Proprietary Modification Program” which was essentially a set of criteria and modification underwriting standards that are set in place by specific mortgage investors, such as Fannie Mae and Freddie Mac. Not all Government Sponsored Enterprises (GSE’s) have in house Loan Modification Programs, it mainly varies from investor to investor, but there are a fair amount of private investors who do offer such programs. For the most part, a mortgage investor would rather keep a borrower in their home and earn interest from them, than take the house back in foreclosure and hope to sell it for a fair price. It’s a much safer proposition for a lender, but only if you have income and they deem you qualified to make monthly payments.

How Does This Affect My Mortgage?

If you are behind on your mortgage, this actually may affect you substantially. The lapse of HAMP essentially removed any governmental incentive servicers and investors were getting for modifying loans, which should theoretically make it harder to get a modification. But as I have noted above there should still be In House programs under which you can apply. This article also seems to suggest that there may even be a lack of consistency in the modification programs throughout the industry. I.E. Wells Fargo may seek to modify your mortgage to 31% of your income and Chase could do 28%, but these are just guesses. Also, it appears that the timeline for modifications will be sped up, since homeowners will no longer be considered for the HAMP program. This may increase the effectiveness of modifications, since in my experience one of the greatest determining factors is the length of the modification process and the arrears accrued at the end of the process.

It yet remains to be seen how the housing market will react to this change, and whether the lapse of the HAMP program will bring a new wave of foreclosures in Cook County and around Chicago. If you or someone you know if facing foreclosure or has missed a mortgage payment call Steven Grace at 312-493-6912 for a free phone foreclosure consultation.

Can I Be Fired for Filing Bankruptcy?

I get this question very often. People want to know not only how a bankruptcy will affect their credit score, but also how it will affect their professional life. The key thing to keep in mind is that if you have a job, there is law in place that affect your employer from firing you solely for filing bankruptcy. That isn’t to say that they couldn’t fire you for cause for a variety of other reasons, but they cannot fire you just because you filed bankruptcy.

The Bankruptcy Code

11 U.S.C. 525 states:

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

This essentially means, that all employers both private and public (governmental employers) cannot discriminate against current employees solely based on bankruptcy status. Aka, they cannot make any adverse decisions against you because you have decided to file bankruptcy. This applies to all types of Bankruptcy, Chapter 7, Chapter 13 and Chapter 11.

If you would like to speak more about your bankruptcy options, call Chicago Bankruptcy Attorney Steven J. Grace for a free phone bankruptcy consultation.

Chapter 13 Debt Limits

As of April 1, 2017 the debt limits for a Chapter 13 Bankruptcy are $1,184,200 for secured debts, which includes mortgages and other liens secured by property, and $394,725 for unsecured debt, which typically includes credit cards and medical debt among others. If you are above these limits, you do not qualify for a Chapter 13 bankruptcy, which generally means you may have to explore your options under either Chapter 7 but more likely under Chapter 11.

Properly Categorizing Your Debts

If you are unsure as to how your debts should be treated, it is very important to hire an experienced attorney to properly analyze and schedule them on the Bankruptcy Petition. Debts may qualify as contingent or unliquidated, which means they must be listed on the bankruptcy but they do not count towards the debt limits mentioned above.

Contingent Debts

A contingent debt are debts you have no obligation to pay until a certain event or “contingency” occurs. Personal guarantees are usually considered contingent debts, because until a default has occurred, you have no obligation to pay. Cosigned debts are not considered contingent debts, the legal responsibility to pay is considered joint and several by the lender, thus cosigned debts count towards the limit.

Unliquidated Debts

These are the types of debts where your legal obligation to pay has not been determined, typically by a judge or other legal tribunal or arbitrator. Debts such as these typically include personal injury lawsuits, or other suits both civil and even criminal in nature, which typically involve restitution. Until a judge or fact finder has made a determination as to liability or guilt, these debts remain unliquidated, mostly because there’s a chance you could not be found liable.

Undersecured Mortgages and Lien Stripping Issues

The problem that I’m running into lately, especially with people with lingering real estate issues (dilapidated properties still in their name, lawsuits on very old mortgages) is that although you may think a debt is a mortgage and thus secured, that if the value of the property is worth less than what you owe, the remaining portion is considered unsecured debt for Chapter 13 debt limit purposes. So if you have a lot of mortgage debt, and the properties aren’t worth anything, it is very easy to push yourself over the $394,725 debt limit.

In addition, any amounts that are to be lien stripped in Chapter 13 are also to count towards the unsecured debt limit. Which generally means that if you own multiple properties and have an above median income, you are probably going to end up in Chapter 11 where there are no debt limits. But if you have recieved a denial of discharge under 727 then your only option for discharge is the Chapter 13, so keep that in mind.

If you would like to speak with a Chapter 13 bankruptcy attorney in the Chicago area please call Steven J. Grace at 312-493-6912 for a free debt consultation today.

My Chapter 7 Has Been Denied, Now What?

I recently had a client come to me who had his previous Chapter 7 denied under 727(a)(3), 727(a)(5) and 727(a)(6)(c). Evidently a creditor had started to request documents and since he was unemployed at the time, he could not afford the additional fees required to defend this separate adversary action. So the creditor ended up filing a complaint to deny discharge and the Client had to defend it pro se. Needless to say, he eventually lost at the hearing and his Chapter 7 bankruptcy was denied.

You Cannot File A Subsequent Chapter 7 to Discharge Previously Denied Debts

11 USC 523(a)(10) lays out all of the debts that cannot be discharged in a subsequent Chapter 7 case.

The statute states:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt…

(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;

So essentially any debt that “was or could have been listed or scheduled” in the previous case in which the bankruptcy was denied under 727 is automatically non-dischargeable under any subsequent Chapter 7 case. And there is no expiration on this, these debts cannot be discharge in any Chapter 7 case, ever.

There is Hope, the Chapter 13 Super Discharge

You may think you will never be able to get on your feet again, that you will die paying off these debts, but there is hope.

11 USC 1328 states:

(a) Subject to subsection (d), as soon as practicable after completion by the debtor of all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt-

(1) provided for under section 1322(b)(5);
(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a);
(3) for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime; or
(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.

As you can see, 11 USC 523(a)(10) is not listed above. Most courts have read this to mean that debts that were denied discharge under 727 in previous Chapter 7 cases can be discharged under Chapter 13, as long as all of the requirements are met under 1328. This means you pay as much as you can afford to pay under a Chapter 13 plan for a period between 3 and 5 years depending on you income and you can be debt free, even if you have received a denial of discharge.

If you are in the Chicago area and would like to speak further about your options in regards to Bankruptcy, both Chapter 7 and 13 please call Steven J. Grace at 312-493-6912 for a free phone consultation.

Can I Get A Job After I File Bankruptcy?

This is one of the most common questions I get in regards to people who are considering filing bankruptcy, especially for people who work in finance or other high profile positions. If you are worried that a future employer will notice your bankruptcy on a credit check or other background check and turn you down for the job, there is some hope.

The Federal Bankruptcy Code

11 U.S. Code § 525 breaks down discriminatory treatment based on bankruptcy status into two separate categories, private employers and public employers such as the federal government.

Public Employer Bankruptcy Discrimination

The good news is that public employers, besides some tiny exceptions, cannot discriminate, fire or punish based on bankruptcy status. For the most part, almost all public employers are covered by this statute which states:

“(a) … a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act…”

The law surrounding public employers is much more broad than private employers which we discuss below. This also includes your interaction with multiple government benefits and functions. The government cannot deny these public services based on a bankruptcy filing:

– Public Benefits, such as welfare, foodstamps and unemployment
– Public Housing such as HUD’s Section 8 Program
– Licenses such as Driver’s Licenses and Liquor Licenses
– Government Guaranteed Student Loan Programs or Mortgage Finance Programs

Bankruptcy Discrimination by Private Employers

Private Employers cannot punish or fire an employee because of a bankruptcy filing. The statute states:

“(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt”

However, this doesn’t prevent a future employer from refusing to hire you based on your bankruptcy status. Also, it must be noted that when applying for rental housing your bankruptcy status will also be considered, and can be used as a reason for denial.

Should I file Bankruptcy?

The decision is ultimately up to you. However, it must be noted that although a bankruptcy does stay on your credit report for up to 10 years, it is fairly easy to earn a credit score in the 600s within 2 years of filing your case. The other issue to take into consideration, is how much you will be paying in interest if you choose not to file bankrputcy, including the impending lawsuits, wage garnishments, repossessions and other legal issues you will face outside of bankruptcy. Sometimes, the risks simply outweigh the rewards.

To speak with an experienced Chicago Chapter 7 and Chapter 13 Bankruptcy Attorney call Steven J. Grace for a free phone consultation today at 312-493-6912.

Should I Sign A Reaffirmation Agreement in a Chapter 7?

The answer to this question is generally no. In order to understand why, you need to understand the underlying reasons. A Chapter 7 bankruptcy is called a “Fresh Start” bankruptcy because 120 days after filing a debtor will get their discharge if all goes as planned. This means creditors can no longer garnish wages, or freeze bank accounts. Thus, the personal liability you had to your creditors has been discharged. This doesn’t mean that a creditor can’t take collection activities against collateral, such as vehicles and real estate.

What is a Reaffirmation Agreement?

A reaffirmation agreement is simply a replacement contract that is executed during a bankruptcy. As mentioned above, a Chapter 7 will basically void all of the contracts you have in place with creditors. This could mean credit card agreements, mortgage notes, car notes, etc. Thus, you no longer have to personally pay on these debts, but as I mentioned above the creditor can still repossess the security or collateral. What a reaffirmation agreement does, is it replaces the contract that was voided by the Chapter 7 discharge and puts you back on the hook personally for all the debts you owed prior to the bankruptcy. This means that a creditor can now take money from you personally, either from a wage garnishment or a bank account levy, instead of just repossessing certain collateral.

So Does it Ever Make Sense to Sign a Reaffirmation Agreement?

I have seen only a few instances where it made sense to sign a reaffirmation agreement. In one instance a Mortgage Company, Wells Fargo actually, offered to bring my client current on his mortgage in a Reaffirmation Agreement. My Client was already behind on his mortgage by a few years and within the bankruptcy we were able to bring him current. This bypassed the loan modification process and we were able to essentially modify the loan simply and inexpensively. Another instance is where the lender lowers the interest rate in the Reaffirmation Agreement. If a lender is giving you a better rate in the agreement, and you intend to keep the asset (home or car) then this might make sense because it will save you money. But I’d also make sure that there are no expensive repairs that are foreseeable, because if you reaffirm, the minute you do you’re back on the hook even if the car breaks down or the house sinks into the ground. So as a rule of thumb, reaffirmation agreements are a bad deal for debtors, UNLESS you are getting something back in return. Never reaffirm at the exact same terms you had prior to bankruptcy, it makes no sense. I had one instance where a Client wished to take her vehicle to Puerto Rico from the US and the lender refused to let her because she didn’t reaffirm. Thats the one instance where I’ve seen it come back to bite someone, once! Even if you wish to keep property, don’t reaffirm and just keep paying the bills as agreed, you will still get title upon completion, and won’t incur any additional personal risk. Be smart!

If you or someone you know is considering a Chapter 7 Bankruptcy in Chicago or even Illinois, call 312-493-6912 for a free confidential phone consultation with experienced bankruptcy attorney Steven J. Grace.

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At The Law Offices of Steven J. Grace, based in Chicago, Illinois, we represent clients throughout Chicagoland, including the cities of Deerfield, Jefferson Park, Lisle, Northbrook, Oak Brook, Park Ridge, Schaumburg, St. Charles and Warrenville; and other communities in Cook County, Dupage County, Will County, Grundy County, Kendall County, Kane County, LaSalle County and Lake County.