Hi, Matt McArthur. Bankruptcy attorney at Clear Counsel Law Group. Today we're going to be talking about Reaffirmation Agreements in the state of Nevada.
Now warning ahead of time, this conversation's going to get a little technical and can be a little complicated. If there is any confusion about this, please come in and see me at a free consultation.
I'd be happy to discuss this in greater detail with you. Make sure that you fully understand that topic.
For now, we're just going to dive in.
What is a Reaffirmation Agreement?
Reaffirmation Agreement, first let's talk about what one is.
When you file for bankruptcy and you have a secured debt, this would be a loan that is attached to something like a house or a car, creditors will often seek to have you sign what we call, Reaffirmation Agreements.
This is an agreement or a contract between you and the lender for that loan that you are agreeing to not include them in your discharge and that you will be responsible for that debt following the bankruptcy regardless of whether or not you receive a discharge at the end of your bankruptcy case.
There may be reasons why you would want to do a Reaffirmation Agreement; however, in the state of Nevada, particularly when it pertains to vehicle Reaffirmation Agreements, my recommendation is that my clients do not sign them.
Why a Reaffirmation Agreement May Not Be in Your Best Interest
The reason is because there's been a recent change in Nevada law.
In October 2011, Nevada law changed and there was a bankruptcy case here at the District Court level, an opinion by one of the local judges was issued. It was in a case called In Re Henderson.
In that case the Judge essentially interpreted the Nevada law to mean that the simple act of filing for bankruptcy does not constitute, or is not the equivalent of, a breach of contract under your purchase agreement.
Let's take a minute to slow down and try and understand this.
Typically when you buy a car you sign a contract saying that you'll pay back the bank for the money that they lent you to be able to buy the car.
Copyright: ginasanders / 123RF Stock Photo
In that contract, somewhere in that fine print, there's probably a clause that says the mere act of filing a bankruptcy is a breach of contract. When you breach this contract, or you're in default under this contract, we have the right to take back the car regardless of whether you're current on your monthly payments.
It's a big issue when the Court here says that even though you have a specific contract with this bank that says if I file bankruptcy you can come and get the car and Nevada law says, no you cannot.
It is not a breach of contract. You did nothing wrong pursuant to the contract according to the laws of Nevada.
In other words, what does this mean? What does this mean for your ability to keep your car? As long as you are otherwise in good standing under the contract, you're making your monthly payments, likely you're required to maintain current insurance on the vehicle and keep it registered.
As long as you're otherwise fulfilling your end of the bargain on the initial contract, filing for bankruptcy doesn't change any of that. You can continue to make your payments, perform under the contract and keep the vehicle without fear of the bank coming and taking your car away.
You May Not Need a Reaffirmation Agreement to Keep Your Car
That's a big reason why my counsel is, let's not sign this Reaffirmation Agreement that's going to keep you on the hook and keep you liable for the full amount of the loan of the car because we never know what's going to happen down the road.
If the remaining amount of time on the contract is two, three, four, five years you may experience a job loss, this car may become unaffordable for you in the future, and you retain the option to give the car back or surrender the car without any further financial obligation if you don't sign the Reaffirmation Agreement. Not so if you did sign the Reaffirmation Agreement.
If a Reaffirmation Agreement is signed and you later turn in a car after the bankruptcy discharge, it's very likely the dealer or the car lender will try to resell the car at an auction for much less than what's owed and the difference between what the car sells for and what is still owed is called a Deficiency Judgment.
The car lender will inevitably pursue you and try to collect that money still. Even though you filed bankruptcy.
If You Want to Keep Your Car, Come Talk to Me
In my mind, retaining that flexibility and that protection from future liability is a much greater benefit than the nominal benefits that you may receive by actually entering into a Reaffirmation Agreement.
Such as, continued reporting on your credit report. If there's some reason that you feel strongly about signing a Reaffirmation Agreement, we can absolutely do that.
Please come in and see me if you have any questions about any of this and let me help you navigate the landmines that exist with this particular topic.
The consultations are free, the advice is free, the information is free.
There's no reason not to come in and speak with me.
I hope to hear from you soon and we can talk in greater detail about your car, your house, your ability to keep it and whether or not a Reaffirmation Agreement is appropriate in your situation.
Hope to hear from you soon.