On the Chapter 7 bankruptcy paperwork, filers will see four options on the “Statement of Intentions” form: Surrender, Redeem, Reaffirm or Other. This is your declaration of intention regarding the secured debts in your name. Secured debts include items such as: mortgages, vehicle loans, jewelry loans, timeshares, furniture/appliance loans, etc.
Filing the Statement of Intentions form doesn’t generate any liability. If you state (through the form) that you intend to continue payments toward any secured debt (home, vehicle, etc.) in order to keep it, you still have the option of changing your mind in the future. For instance, you could state that you intend to keep your home/continue making mortgage payments, but later, you discover that you cannot afford to make the mortgage payments after all. You don’t realize this until after the bankruptcy case is closed. You are not liable simply because you stated that you intended to continue making payments and keep your home.
When considering which of the four listed options to mark on your Statement of Intentions:
Surrendering means you don’t want the property and wish to return it to the lender. This is a valid choice for any type of secured debt. Again, simply stating that you intend to surrender an item does not automatically eliminate liability. For instance, you might decide that you prefer to surrender your vehicle, but when you file the bankruptcy petition, the vehicle is still in your possession. Until the lender has taken physical possession of the car, you need to maintain your insurance coverage on the vehicle.
Redeeming, in reference to bankruptcy law, refers to paying off a loan for the retail market value of the property securing the debt or obtaining a new loan with a lender at the retail market value of the asset. For instance, you might own a vehicle with an attached loan balance of $20,000. The current retail value of that same vehicle could be closer to $12,000. When “redeeming” you could either pay off the auto loan at $12,000 or find another, new lender who would be willing to finance the vehicle at the lower, retail value.
Reaffirming a loan requires that the bankruptcy filer sign a legally enforceable contract that requires continued repayment of all or a portion of the debt that would otherwise be discharged along with other debts listed in the bankruptcy filing. Extra caution is recommended when considering reaffirmation. Most southern California bankruptcy attorneys will not recommend that bankruptcy filers reaffirm a mortgage or auto loan. The single apparent benefit to doing so would be that on time payments toward the reaffirmed loan would benefit your credit score post-bankruptcy. *In most cases, reaffirming a mortgage is unnecessary. You can simply continue to make payments. But some will require reaffirmation in order to keep your home post-bankruptcy. Contact your mortgage lender for additional details specific to your situation.
“Other” on the Statement of Intentions refers to several other options. Some mark “Other” and list their loan modification information under additional information. This is a common choice when bankruptcy filers are behind on their payments or hope to modify their home loans. Of course, marking that you are attempting to obtain a modification of your home loan on your Statement of Intentions in no way binds your lender to the agreement. You must still proceed through the home loan modification application process as required by your lender. In addition, if you mark that you are getting a modification, but the lender denies your application, you are still permitted to walk away from the home without liability. Another common reason filers mark “Other” is if they intend to keep the property and keep making payments. Some lenders will permit borrowers filing bankruptcy to simply keep making payments and keep their property. Some state laws require lenders to accept this option. *The lender will allow you to keep the asset in this situation, but your on-time payments post-bankruptcy will not be reported to the credit bureau and therefore will not benefit your credit score.
If you need additional information about filing for bankruptcy or the Statement of Intentions specifically, contact the southern California bankruptcy attorneys at Westgate Law.