Unlike most legal contracts, you can change your mind and undo a reaffirmation agreement during a short period of time after signing it.
Our last four blog posts have been about reaffirmation agreements in a “straight bankruptcy” Chapter 7 case. In particular the first of these introduced these special agreements and the second one discussed their risks. (The ones dated December 20 and 22.) You might want to look at those before reading further here.
In one sentence: if you want to keep for yourself the collateral on a debt (such as a vehicle), usually you have to agree to continue owing that debt, which you do by signing a reaffirmation agreement. That agreement excludes that one debt from the discharge (the legal write-off) of your debts provided through your bankruptcy case.
Your bankruptcy lawyer should fully advise you of your options and rights before you sign a reaffirmation agreement. One of the rights you should learn about is your time-limited right to rescind the agreement. This is the subject of today’s blog post.
Your Right to Rescind
Your ability to rescind a reaffirmation is laid out clearly in the bankruptcy court’s sample reaffirmation agreement form. It states (see top of page 5):
You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To rescind (cancel) your reaffirmation agreement, you must notify the creditor that your reaffirmation agreement is rescinded (or canceled).
Timing of Rescission
Notice the two-pronged deadline—either before the court’s discharge order or within 60 days of the reaffirmation agreement’s court filing. The discharge order is usually entered about 60 days after your “meeting of creditors.” That in turns usually comes about a month after the filing of your Chapter 7 case. More often than not a reaffirmation agreement is filed after the “meeting of creditors.” So, usually the rescission deadline is 60 days after the reaffirmation agreement gets filed at the bankruptcy court.
The problem is that usually you don’t know when your reaffirmation agreement is filed. Furthermore, once it’s filed most lawyers will understandable assume that you’re not going to change your mind about it. So you’ll be told about your right of rescission but then most of the time nobody figures out or tracks when that right expires.
(The exception might be when there is a specific reason that you are considering rescinding even at the time you sign the reaffirmation agreement. We’ll give an example towards the end of this blog post.)
Seriously consider specifically asking your lawyer to determine your rescission deadline, and then calendar it. Your circumstances could change even in that short time so you don’t want the deadline to pass unnoticed. It’s good for you to consider one last time whether you really want to stick with that debt.
Notice of Rescission
If you do change your mind and want to rescind the reaffirmation agreement, instruct your lawyer to give the appropriate notice to the creditor.
Make sure that lawyer’s representation has not ended. Some lawyers end their responsibilities to you at the discharge and closure of the case. That often happens before the rescission deadline. Don’t just assume that your lawyer is continuing to represent you and “will take care of it.” Get verification that he or she is accepting the responsibility and is giving the creditor notice of rescission.
If you are not represented by a lawyer, you must make absolutely sure that you notify the creditor adequately. Mail the notice by certified mail, return receipt requested, so that you get verification well before the deadline. Use the address in your creditor schedules, after verifying it is accurate. Under certain circumstances it may make sense to send notice to more than one address. For example, if the creditor has been represented by a lawyer definitely give notice to the lawyer as well.
Circumstances to Rescind
The vast majority of the time you will not rescind a reaffirmation agreement. You’ll have understood what you signed and its consequences. Your circumstances likely won’t change much during the short time between signing the agreement and your deadline to rescind. Your well-informed decision to reaffirm will stand the test of time.
However, you would consider rescinding if somehow you didn’t understand the consequences of reaffirming, or your circumstances changed.
Considering the safeguards in place it’s hard to not be well-informed about what reaffirming a debt means. If you’re represented by a lawyer he or she must certify that certain specific details were explained to you. If you’re not represented by a lawyer you go to a reaffirmation hearing where a judge does the same thing. But if somehow something was still not clear, you can simply get out by rescinding.
Circumstances can change in countless ways. You may suddenly get access to another less expensive vehicle, and decide to get out of your reaffirmation agreement. You may realize that you can’t afford the vehicle after all. Your insurance may go way up because of a couple tickets or an accident. The vehicle may need a string of repairs you can’t afford.
One other situation is if you are not sure whether you want to reaffirm at the point you have to decide. For example, you may be waiting to hear if you got accepted for a better-paying job enabling you to pay the vehicle loan payments. So you sign the reaffirmation agreement to allow you to keep the vehicle. Then you don’t rescind if you get the job; you can rescind if you don’t.
To be clear, you don’t need any particular reason to rescind. You have an absolute right to do so within the stated time.