Statement of Intention in Chapter 7 Bankruptcy
What is the Statement of Intention?
The Statement of Intention for Individuals filing Under Chapter 7 lets the court, the chapter 7 trustee, and your creditors know how you wish to handle secured debts and leases. In most consumer cases, these are for car loans, home loans, or residential leases. In commercial cases, these can be supply contracts or commercial leases.
You have a few options with the Statement of Intention. You can surrender the asset, in which case after your bankruptcy discharge, you will not owe any additional amounts for that asset. You can retain the asset, and if you do so, you have a few options. You can redeem the property under to 11 U.S.C. § 722 which means that you will pay if off. Redeeming a car can also be a good way to refinance the car for a lower monthly payment, and Steiner Law Group works closely with lenders that specifically offer refinancing in chapter 7 bankruptcy. You can also reaffirm the debt, which means that after your bankruptcy, you are still personally responsible for the debt you avoid also a lien under 11 U.S.C § 522(f). Finally, you can select “Other.” For leases, you have to option to assume or reject them.
Why is the Statement of Intention Important?
Secured Loans
The treatment of your secured debts in chapter 7 affects what happens to your assets both during the course of your bankruptcy and after your bankruptcy is discharged. The simple check boxes contained in the Statement of Intention determine what happens to your assets that have a secured loan, which is more often than not your car or a home that is underwater.
You have the option to surrender the asset to the secured creditor, which may be a good option if you can no longer afford a high car payment of high mortgage with homeowner’s association or condo association dues. If you select surrender, Steiner Law Group can advise you on when you need to surrender the asset – whether it’s during your bankruptcy or after your discharge is entered. If you choose to surrender the asset, you can simply walk away without any additional liability.
If you select “Reaffirm,” you will have to file with your court a reaffirmation agreement and attend a hearing for that, and you will have to demonstrate to the court the elements necessary for reaffirmation. Reaffirming a debt also means that if, after your bankruptcy discharge, you fall behind on your car payments, not only can the finance repossess your car or other secured asset, but they can also sue you personally and garnish your wages and bank accounts. Car finance companies will most often pressure you into signing a reaffirmation agreement, which most likely is not in your best interest. They will also often demand that you surrender your car immediately, and you may not have to do so.
If you choose to “Redeem” the property, you must do so within court prescribed time periods, and failure to do so could result in the dismissal of your case. If you wish to avoid a lien, you have to file the appropriate paperwork with the court and ensure that the lien is avoidable.
The “Other” category is a very powerful option and if used correctly, can be very beneficial to you.
Steiner Law Group can advise you on how best to complete the Statement of Intention so that you understand the effect it will have.
Leases
The Statement of Intention also specifies your intention for any leases you may have. Most leases are structured for a specific term, and if you break your lease, you are typically responsible for the balance owed on the term of your lease. For example, if you have a 12-month lease for an apartment and you wish to move out during month 6, you will still be responsible to pay for months 6-12. If you do not, the leaseholder can sue you for the balance and obtain a judgment against you. In chapter 7 bankruptcy, if you wish to get out of your lease, you can indicate so on your statement of intention, and you will not be responsible for the balance owed on the lease. This can be a very helpful tool to allow you to unburden an expensive lease.
Working with Steiner Law Group on your Statement of Intention
It is vital that you understand the effect that the Statement of Intention can have in your bankruptcy and years down the road. Steiner Law Group has built relationships with auto refinance companies that may allow you to lower your car payment through a redemption, and with mortgage brokers and lenders that can assist you in obtaining financing for a new home. We can also advise you on whether or not it’s in your best interest to reaffirm a secured debt or whether it is against your interest.