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Recent Blog Posts
Rescinding a Reaffirmation Agreement
Unlike most legal contracts, you can change your mind and undo a reaffirmation agreement during a short period of time after signing it.
Reaffirmation Agreements
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.
A Debt Reaffirmed under Chapter 7
You can usually keep collateral you need to keep by entering into a “reaffirmation agreement” with the creditor during your Chapter 7 case.
Last time we got into debts that you might voluntarily pay after a Chapter 7 case out of personal obligation. Today we cover debts voluntarily paid but for the purpose of keeping the collateral that’s securing the debt. This is usually done by “reaffirming” the secured debt.
There can be lots of important side issues with “reaffirmations.” For example, do you always have to reaffirm a debt in order to keep the collateral? What happens if you’re not current on the debt you want to reaffirm? Can you reaffirm a debt when it’s unsecured—when there is no collateral to retain? When is reaffirming a debt dangerous?
We’ll get to those and other side issues next time. But today we’re introducing reaffirmations in their most straightforward form.
Chapter 7 Buys Time to Redeem Your Vehicle
If your vehicle is worth less than its debt, and you can get the money representing that value, you can “redeem” the vehicle free and clear.
Two blog post ago we went through a list of ways Chapter 7 buys you time with your vehicle lender. Included was that it buys “time to gather funds to redeem your vehicle for less than you owe on it.” This “redemption” option deserves more attention.
Reaffirmation and Redemption
If you want to keep your vehicle in a Chapter 7 “straight bankruptcy,” your two options are “reaffirmation” and “redemption.” You can either reaffirm the debt or redeem the vehicle.
Reaffirmation is far more common. You enter into a reaffirmation agreement, agreeing to repay the loan as if you had not filed bankruptcy. You almost always recommit to paying the entire loan balance, reaffirming that you want to pay it. You agree to remain liable on the original loan, excluding it from the discharge that you are receiving of all or most of your other debts. (We covered reaffirmation a few months ago.)
Dealing with Recorded Tax Liens through Chapter 13
A recorded tax lien gives the IRS/state a lot of leverage against you and your home. Chapter 13 can gain you back some of that leverage.
Stopping Tax Liens by Filing Bankruptcy
In our last blog post we showed how Chapter 13 can buy you more time and flexibility than Chapter 7. We showed an example how that’s especially true if you owe more than one year of income taxes. Our example assumed that two tax years met the conditions to discharge (legally write off) that debt, while another tax year didn’t.
That example assumed that the IRS/state had not yet recorded a tax lien on your home for either tax year. A bankruptcy filing stops a tax lien’s recording. Then if the tax debt is discharged, the debt is gone so there’s no further basis for a tax lien. Or if the tax debt is paid in full (usually through a Chapter 13 payment plan) again there’s no further debt on which to impose a tax lien.
A Sample Completed Chapter 13 Case
What does the completion of a successful 3-to-5-year Chapter 13 case look like? What happens to your assets and debts?
The Sample Chapter 13 Case
In our last blog post we wrote about completing a Chapter 13 “adjustment of debts” case. We focused on the benefits you get at the tail end of your case, and on the case’s final events.
But like so many other bankruptcy procedures, Chapter 13 completion makes much more sense when tied to tangible facts.
So imagine a Chapter 13 case filed to catch up on a home mortgage, “strip” a second mortgage, catch up on some property taxes, and deal with some IRS income taxes.
Henry and Heather had been $7,500 behind on their first mortgage and so at risk of foreclosure. The situation was worsened because they were also $3,000 behind on their home’s property taxes. They hadn’t paid on a $30,000 second mortgage in months, so that mortgage holder was also threatening foreclosure.
A Second Mortgage "Strip" through Chapter 13
If you own a home with a qualifying 2nd or 3rd mortgage, one of the best reasons to file a Chapter 13 case is to “strip” off that mortgage.
Chapter 13 can help you keep your home in many powerful ways. Of those “stripping” a second or third mortgage can likely save you the most money. If you qualify, you can stop paying that mortgage immediately. And it can save you a tremendous amount of money in the long run.
Second or Third Mortgage Under Chapter 7 “Straight Bankruptcy”
If you file a Chapter 7 case you are not able to “strip” a mortgage. You simply have to pay any second and third mortgages on your home or lose the home. The mortgage is a lien on your home, so you have to pay it or the mortgage lender will foreclose on your home.
If your home is worth less than the combined balances of your first and second mortgages you may be able to sell your home through a “short sale.” In this situation the second mortgage lender accepts less than its full balance when you sell the home. But you may be left owing the balance. And in any event, this is not a way to keep your home.
The Option of Severing Your Chapter 13 Case from Your Spouse
When you file Chapter 13 bankruptcy jointly with your spouse, you commit to a repayment plan that typically lasts three to five years. During that time, life can change dramatically. One of the most significant changes that can happen is divorce or separation. If you and your spouse decide to end your marriage while you are still in an active Chapter 13 case, you might wonder what happens to your bankruptcy.
The good news is that Texas bankruptcy law provides options in 2026 for married couples who file jointly but later separate. You can sever your joint Chapter 13 case into two separate individual cases, dismiss the case entirely, or convert it to Chapter 7 bankruptcy. Our New Braunfels bankruptcy attorney can explain how.
What Happens to a Joint Chapter 13 Case When You Get Divorced?
A Chapter 13 case requires cooperation between spouses who file jointly. You create a single repayment plan based on your combined household income and expenses. You make one monthly payment to the bankruptcy trustee, who then distributes the money to your creditors according to the approved plan.
Using the Co-Debtor Stay of Chapter 13
If protecting your co-debtor from having to pay your debt is a high priority, Chapter 13 has a remarkable tool for doing that.
Chapter 7 Doesn’t Always Help
Our last blog post was about helping your co-signer through a Chapter 7 “straight bankruptcy” case. You discharge (legally write off) most or all your other debts. Then you may be able to afford to make payments on your co-signed debt.
But that doesn’t always work. What if:
- discharging your other debts still does not leave you enough money to make the monthly payments on the co-signed debt?
- you have other debts that you would continue to owe after a Chapter 7 bankruptcy—recent taxes, child support arrearage, non-support divorce debt, student loans—leaving you unable to pay your co-signed debt?
- you are behind on the co-signed debt and can’t afford to catch up on the missed payments right away?
Surrendering Your Vehicle in a Chapter 7 Case
If you’re buying a vehicle, sometimes getting out of the contract is your best option. Chapter 7 lets you do that, owing nothing.
“Reaffirming” Your Vehicle Loan
Our last blog post was about keeping your vehicle in a Chapter 7 “straight bankruptcy” by reaffirming the vehicle loan. If you are current on the loan/lease and can afford the payments after bankruptcy, reaffirming may make sense.
But sometimes it isn’t your best option. Bankruptcy also gives you an extraordinary opportunity to get out of your vehicle contract and its debt.
Even if you think you should keep your vehicle, consider the advantages of surrendering your vehicle during a Chapter 7 case.
Your Opportunity to Escape the Debt on the Vehicle Loan
Consider 3 scenarios:
- You may regret having made the purchase. You might have been talked into it by a pushy salesperson. You may have been surprised when you qualified for the credit and figured that you should grab the opportunity. But you’ve known for a while that it was a mistake. Bankruptcy is your chance to undo the mistake.
Household Size Really Matters for Passing the Means Test
You can have more income for the purpose of passing the means test as your household size increases. But what IS your household’s size?
Household Size in the Means Test
When introducing the means test a week ago we showed how passing that test often depends on your income. You start by comparing your income to the median income amount for your family size in your state. As your family size increases you can have more income and still pass the means test.
For many people the size of their household is obvious. But not for everybody. Today’s blog post gets into how to figure out the size of your household when it isn’t obvious.
Where to Find the Definition of Household
The federal Bankruptcy Code does not provide a definition of household or how to determine its size.
The U.S. Trustee points us in the right direction. (That’s part of the U.S. Department of Justice which Congress tasked with enforcing the means test.) The U.S. Trustee has put out a "Statement of the U.S. Trustee’s Position on Legal Issues Arising under the Chapter 7 Means Test." This Statement states:
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