Is a reaffermation agreement valid if the debt becomes unsecured?

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Is a reaffermation agreement valid if the debt becomes unsecured?

I filed Chapter 7, reaffirmed my auto loan, and about 4 months later I totaled the car. The finance company released the lien off the title and took the money the auto insurer offered. Does that agreement still apply or since now the debt is unsecured it’s void.

Asked on November 17, 2011 under Bankruptcy Law, Missouri

Answers:

Robert Braverman / Law Office of Robert Braverman, LLC

Answered 9 years ago | Contributor

When you filed the bankruptcy, the lien remained on your car but you had the ability to eliminate any personal liability, for example, where you surrender car and it sells for less than you owe. When you signed the reaffirmation agreement, in effect you took the vehicle out of the bankruptcy and your obligations to the lender would be the same as if you never filed bankruptcy. As a result, if the insurance did not payoff the loan, since you reaffirmed the note to the lender (the bankruptcy did not impact the lien which remained on the car) you would be responsible for the deficiency. Perhaps you or your attorney can negotiate a settlement reducing any balance under these circumstances.


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