A reaffirmation agreement is a voluntary agreement made between a creditor and a debtor that waives discharge of a debt that would otherwise be discharged in a bankruptcy proceeding. This agreement typically regards secured property. If you choose to make a reaffirmation agreement with one or more of your creditors you become legally obligated to pay the debt despite filing for bankruptcy. Because this is removed from the bankruptcy process, if you fall behind on a reaffirmed debt, you will be vulnerable to deficiency judgments if you default.
Should I Reaffirm?
Because reaffirmations still requires monthly payments between you and the lender, before considering it you must be sure you can afford it. In order to ensure that you can afford the reaffirmation, the contract must include information about your income and expenses, as well as a signed statement from you that you can indeed afford it. If you do decide not to sign a reaffirmation agreement for either your car or home, as long as you able to stay current on your payments, the lender will typically refrain from foreclosure or repossession.
Do I Have to Reaffirm Any Debts?
No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. Remember, if a creditor tries to pressure you to reaffirm, you have the power to say no.
Do I Have Other Options for Secured Debts?
A secured debt is one backed up by collateral in order to reduce the risk associated with lending. You may be able to pay the creditor the amount that the collateral is worth, rather then giving it back or what you owe on the loan. This is your right under bankruptcy law to “redeem” the collateral.
“Redeeming” can save you money since certain items (furniture, appliances, etc.) go down in value quickly once they are used. Therefore, you may redeem them for less than their original cost or what you originally owed on the account
If the creditor did not loan you the money to buy the collateral you may have another option. If a creditor takes a lien on household goods you already own, you may ask the court to “avoid” this, making the debt unsecured.
Do I Have to Reaffirm Car Loans and Home Mortgages?
You may reaffirm a car loan or home mortgage if you can afford to keep up with the payments, enabling you to possibly keep your home or car. If the lender negotiates a time frame that is realistic for you to keep up with, reaffirmation might be a good choice. However, if you were having trouble staying current with your payments prior to bankruptcy and your situation has not improved this may be a mistake.
If you are up to date on your loan, some lenders will let you keep your property without signing a reaffirmation agreement as long as you continue to make your payments.
Credit Cards and Department Store Cards
Generally speaking, it is not a good idea to reaffirm a credit card. Since filing for bankruptcy traditionally wipes out credit card bills, it doesn't give much benefit to reaffirm and continue paying bills once you have gone through the process of bankruptcy. Using cash for a few years is a better alternative to reaffirming a credit card.
Department store cards are handled differently. This is because the store may try and repossess items you have purchased on the card as collateral for the debt you owe them. However, it is very unlikey for a store to repossess used merchandise since the value of these things declines very repidly. While rare, this is still possible. You must decide which items are worth reaffirming and which are not.
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