People know that financial hardship can strike more than once. In circumstances when they’ve already filed a Chapter 7 New York bankruptcy and received their discharge, they will be unable to file again for seven years. These are often very dire situations and usually come about because of poor representation in the initial bankruptcy.
People in these circumstances may have underwater mortgages, or, mortgages whose values are greater than the houses that secure them. These homeowners often contemplate their options: short sales or modifications. They may be ineligible, but for New York bankruptcy attorneys, the question is what happened during their bankruptcy cases. Was the house exempted and the mortgage discharged? Or did they sign a reaffirmation agreement with the lender even though they were making regular payments and weren’t in danger of foreclosure?
Starting 2011, New York State’s bankruptcy exemptions changed to benefit debtors. Now, depending on what county the property is in people can claim between $75,000 and $150,000 of homestead value as an exemption from their bankruptcy estates. This number can be doubled for married couples who both own the homestead and are filing jointly. Now, there are some very high value properties in New York City, but those owners would probably not be eligible for filing in Chapter 7 anyway. Many New York debtors would be able to exempt the full value of their homes from their bankruptcies and subsequently discharge their mortgages. For these individuals, short sales and or modifications aren’t necessary—the debt is no longer enforceable, leaving one to wonder how they came to be paying on the debt after bankruptcy.
In other situations, debtors will be tempted to sign a reaffirmation agreement to keep the house out of the bankruptcy estate. What is a reaffirmation agreement? It’s a deal between the petitioner and a creditor whose loan is secured by some other piece of property, almost always a house or car. It allows the debtor and the lender to exclude that property and the loan from the bankruptcy proceeding provided a few conditions are met. First, the debtor and the lender must sign the reaffirmation agreement. If the debtor is represented by an attorney, he or she must sign too to affirm that the debtor will not suffer an “undue hardship” by continuing to pay the debt, meaning the petitioner’s liabilities won’t be greater than his or her income. By signing, the attorney also asserts that the debtor was not coerced into signing the agreement. Then the parties file the agreement with the bankruptcy court. Absent a lawyer, the bankruptcy judge will look over the agreement and approve it. For those seeking a modification of an underwater mortgage subject to a reaffirmation agreement, the likelihood of success is significantly lower because the debtor cannot file bankruptcy again soon.
This little scenario tells you both of the dangers of reaffirmation agreements and the need for a good bankruptcy attorney.
For more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
