Are you considering filing Chapter 7 bankruptcy and wondering whether you should try to keep collateral securing certain debts?
If you wish to keep property that has been used as collateral, you may opt to reaffirm the underlying debt. A reaffirmation is an agreement between the debtor and creditor that the debtor will remain liable and will pay the debt, even though the debt could have been discharged through the Chapter 7 bankruptcy. If the debtor decides to reaffirm a debt, he or she will be required to sign a written reaffirmation agreement and file it with the bankruptcy court. The court may hold a hearing to determine if the reaffirmation agreement creates an undue hardship on the debtor. The court can either approve or disapprove the reaffirmation agreement. In the case where the debtor’s budget does not show the ability to make the payments, the court will generally deny the reaffirmation agreement.
Should you reaffirm a secured debt? How important is this property to you and your family? Can you and family afford to keep this property? Any debtor making this decision should consult with a bankruptcy attorney and thoroughly review and understand the terms of any reaffirmation agreement you are considering signing. Remember the primary goal of filing for bankruptcy is to discharge debt and get a fresh start. A reaffirmation agreement undermines this goal. Here are some important factors to consider:
1. If you reaffirm a debt, you will have the legal right to keep the property, as long as you continue to make your loan payments.
2. If you reaffirm the debt and eventually default on the loan, you will remain liable for any remaining balance after the property is seized and could be sued for this balance. This is the case even though all your other debts were discharged in your Chapter 7 case.
3. If you reaffirm the debt your credit score will continue to be affected by your payment activity on this loan.
4. If you do not reaffirm the debt, you have no legal right to keep the collateral, but you no longer have any obligation to pay the secured loan.