Monthly Archives: April 2022

What happens if I do not reaffirm my home mortgage or my car loan? And why do they say I can make “voluntary payments” if I want to?

Short answer: you can generally keep the car or home, so long as you keep paying on the loan

Long answer: It’s complicated.

When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.

I’ve written a few blog topics on reaffirmation generally, and those links are listed below.

If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.

(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).

But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.

Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.

As for the home, so long as you keep paying on it, it’s yours.

As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.

Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming:

Can the bankruptcy trustee take my spouse’s property if I’m the only one who filed bankruptcy?

Maybe.

It comes down to a lot of factors, but if you want to boil it down to a simple test, here it is: if it smells funny, then you’ve got a problem.

If the property is clearly your spouse’s, was always theirs, you never helped pay for it, and they’ve owned it for some time, then you do NOT have an ownership interest. However, if you bought it together, or if you’ve made all of the payments on it, or if you gifted it to her, then you’ve got an ownership problem.

When you file bankruptcy, your bankruptcy estate is created. This estate means all of your property, real, personal, and intangible. So if you own a home, a car, and have a right to receive a $5,000 tax refund, then all of these items go into your estate.

We try to exempt, or protect your property so that the bk trustee cannot take your estate property and sell it off to pay creditors. For example, in Utah, only $3,000 of your car’s value is protected. So if you own a car worth $10,000 free and clear, then only $3,000 is safe, and the bk trustee will take it and sell it off. He’ll give you $3,000 and use the rest to pay creditors (less his very healthy finder’s fee).

However, he can’t touch your spouse’s property. That being said, there are various degrees of ownership. If she’s owned her home for the past 10 years, and you only recently met and were married last year, then that home is hers, and the trustee won’t touch it. On the other hand, if you two bought the home 30 years ago, and you were the sole provider, then your money paid off that mortgage. You may not be on title, but you have an “equitable interest,” and there will be problems with the trustee.

Even worse, let’s say that you have a Ming vase that you inherited from your Aunt Mildred. It’s worth $80,000. Two weeks before filing bankruptcy, you “give” it to your wife. That doesn’t count! It’s a fraudulent transfer. The bk trustee will avoid the transfer, sell the vase, and pay your creditors. The shade of Aunt Mildred will be very displeased with you.

It’s all complicated and is usually figured out on a case by case basis. That’s why you want to meet with a bk attorney. Tell him everything. That way he can give you honest advice on how to protect your property (if you can).