WHAT YOU SHOULD KNOW BEFORE YOU REAFFIRM YOUR DEBTS IN CHAPTER 7

Making the decision to file for Chapter 7 bankruptcy could change your life in many ways - mainly, by helping you become debt free. When you file and have a car loan or house loan, you can choose an option that allows you to reaffirm your debt. Before you rush into this, you should understand what reaffirmation of debt is and how it affects you.

What Is Reaffirmation of Debt?

Reaffirmation of debt is a process you can use in Chapter 7 if you want to keep a secured asset that you own. A secured asset is something you own that you have a loan on. Secured debts include car loans and mortgages. For example, if you own a car and do not want to lose it when you declare bankruptcy, then you would have to reaffirm this debt.

Reaffirming the debt keeps the asset tied to the loan, which is beneficial because you will also keep the terms that you currently have in place. This includes the payment amount, interest rate, and the number of payments left on the loan.

Can You Reaffirm Any Secured Debt?

Reaffirming secured debt is a process that the bankruptcy trustee must approve. Additionally, you must also get approval from the lender. Sometimes reaffirming a debt is a relatively easy process to do, but other times the trustee or the lender will not agree to your reaffirmation.

The trustee will base their decision on several things. First, the trustee will determine if he or she thinks you can afford to keep the asset. Trustees decide this by reviewing a person's income and debts.

Secondly, the trustee will look at the amount of equity you have in the asset. Because assets with a lot of equity can be sold to help repay your debts, you may not be able to keep assets with too much equity.

Lenders also have a right to approve or deny reaffirmation requests, and they base their decisions on the same factors as trustees. Lenders typically will approve these requests for people who are current on their loans, whereas they may reject the reaffirmations if people are behind on their payments.

How Do You Reaffirm a Debt?

If you have a car, house, or both that you would like to reaffirm, then talk to your bankruptcy lawyer. Your lawyer will prepare the necessary documents to send to the lenders. Once the lenders receive the documents, they must respond to the letters by stating whether or not they will reaffirm the debts. In either case, your lawyer will let you know the lender's decision.

Should You Reaffirm a Debt?

Before you decide to reaffirm a debt, make sure you know what will happen if you reaffirm the debt and then cannot pay for it. When you are certain you can afford the payments, reaffirming a debt is a good choice.

If you start experiencing financial problems to the point where you cannot make the payments on the reaffirmed asset, then your lender has the right to foreclose or repossess your asset. In this case, the lender can require that you pay all the past-due balances plus any deficiency the lender might experience from selling this asset to pay off the balance you owe on it.
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If you currently have too many debts to pay and cannot afford to make the minimum payments, then you should consider bankruptcy. Give our team at Custer, Custer & Clark LLC Attorneys at Law a call to learn more about bankruptcy and what the best options are for you. When you call, schedule a free consultation with one of our lawyers. We will review your case and help you however we can.