Even though chapter 7 bankruptcy is all about ridding yourself of as much debt as possible, certain situations could call for keeping one or more debts that are attached to certain pieces of property. To find out more about a process known as a reaffirmation, read on.
Why Would Anyone Reaffirm a Loan?
When you list a creditor on your bankruptcy debt matrix, you are essentially tearing up a loan agreement. Each time you take out a loan and accept a credit card, you are agreeing to pay as specified. Filing chapter 7 means you don't intend to pay listed debts anymore and the bankruptcy courts will extend certain protections from debt collection actions. However, when you list a secured debt, you could also end up losing the property that secured it. One of the most common types of secured debts is vehicle loans. The vehicle itself secures the debt. If you were not in bankruptcy, the lender could repossess the vehicle for not making payments. To keep that property, consider a reaffirmation.
What is a Reaffirmation?
Since your previous loan agreement is now void because of chapter 7, the lender must be willing to make a new agreement with you. The new agreement, the reaffirmation, has the same terms as before. You will pledge to continue making payments until the loan is paid off. Reaffirming an auto loan means you won't lose your vehicle at a time when trying to get approved for a new auto loan would be next to impossible. However, you need to know the following things about loan reaffirmations:
- Besides vehicles, almost any type of secured loan can be reaffirmed. However, the lender may not agree to the reaffirmation.
- You must be financially secure enough to make the payments. If you don't manage to make the loan payments going forward, your property can be repossessed, and bankruptcy won't protect you this time.
- You should be up to date on your payments. Speak to your bankruptcy lawyer about how to deal with the lender once you declare bankruptcy. Your chances of being able to affirm a loan if you are behind on payments are slim to none.
- In some cases, the bankruptcy trustee will place a hold on your reaffirmation if they don't agree with it. They may need to hold a hearing and question you about your ability to make the payments in the future. Don't worry, your bankruptcy lawyer will help you with this routine matter.
To find out more about loan reaffirmations, speak to your bankruptcy lawyer. A company like Ozment Law PA may have more information.
