find a general attorney for your future

Bankruptcy is a means of getting out of debt by severing the ties between you and your creditors. However, sometimes you may be forced to keep a loan in place if it's secured. For example, if you want to retain a vintage car, you may opt to stay indebted to your creditor. 

Under Chapter 7 bankruptcy law, this is permitted under a term known as a reaffirmation of debt. Your Chapter 7 bankruptcy lawyer can help you determine whether reaffirmation is a smart move. Here is some basic information on the reaffirmation of debt.

What Is Reaffirmation?

This is the process where you agree to be responsible for a debt so you can retain property that is securing your debt. In this case, you and your creditor make a new pact and take it to court. Before you consider a reaffirmation agreement, make sure you are current on the loan.

Additionally, you should be able to secure all the equity in the asset or collateral with a bankruptcy exemption. This is so that the trustee cannot sell the asset to settle the debts of your unsecured creditors.

What Happens at a Reaffirmation Hearing?

During a reaffirmation hearing, you appear in court to respond to questions regarding your finances. The judge will determine whether to grant the reaffirmation agreement based on whether you can afford to make monthly payments towards your debt.

You should consider whether the monthly payment is feasible because if it isn't and you default on your payments, the lender can repossess or foreclose and even sue for the missed payment. This is because the reaffirmation agreement nullifies a discharge of your debt. It's advisable to seek your Chapter 7 bankruptcy lawyer's opinion before opting for a reaffirmation agreement.

When Can a Reaffirmation Agreement Be Declined?

The court will disapprove of your reaffirmation agreement if it isn't in your best interest. Here are some circumstances under which your reaffirmation request may be turned down:

• If you don't have sufficient funds left after paying other expenses to meet the monthly payments under the reaffirmation agreement
• The loan isn't secured
• The interest rate indicated in the reaffirmation agreement is high

It's worth noting that a reaffirmation is a feasible option for keeping property whose value is more than you owe on it. Also, when reaffirming a debt, you should try to convince the creditor to accept less than you owe them as full payment for your debt. Otherwise, you would end up reaffirming a debt for more than it would cost to replace the property.