Chapter 7 Bankruptcy: Reaffirming Secured Debts

Mar 29, 2017


If you are filing a Chapter 7 Bankruptcy, it is because the amount of debt you have is beyond your ability to repay and you are in need of a fresh start. A Chapter 7 bankruptcy will wipe out your responsibility to pay all dischargeable debts including your unsecured and secured debts. The most common secured debts are for mortgages and vehicles. What if you want to keep your house or vehicle? If you want to keep the property associated with the debt, then you are required to continue to pay the debt. This can be done voluntarily or by entering into a Reaffirmation Agreement.


A reaffirmation agreement is a legal document filed with the bankruptcy court wherein you are stating that you want to keep the property and are agreeing to be responsible for the money owed to the creditor even though you filed bankruptcy. Please note, that in order to enter into a reaffirmation agreement, you must be current on your loan or the creditor will not offer a reaffirmation agreement.


Although the point of filing Chapter 7 Bankruptcy is to get rid of your obligation to pay on your debts, keeping a car or home loan does have possible benefits. For instance, it can help rebuild your credit faster. After filing bankruptcy you are encouraged to rebuild your credit. Entering into a reaffirmation agreement assures that the creditor will report your payments to the credit bureau, which if you continue to stay current, will help your credit score. By entering into a reaffirmation agreement the creditor is also more likely to work with you in the future as far as refinancing your loan or for offering future financing. Please note that many mortgage companies require a reaffirmation agreement in order to refinance your home mortgage after a bankruptcy.


Usually, you are not required to enter into a reaffirmation agreement in order to keep your property associated with your loan; you are allowed to make voluntary payments. There are good reasons not to enter into a reaffirmation agreement and not all creditors offer reaffirmation agreements. You may not be able to afford the loan in the future. If no Reaffirmation Agreement is signed and filed with the court, then the creditor can only take back the collateral for the loan, they are not allowed to go after you for the deficiency of that loan in the future. If you owe more money than the collateral is worth, not signing a reaffirmation agreement could be in your best interest, especially if you do not have job security. For example, what if you lose your job and are no longer able to pay on your car loan. The creditor can repossess your vehicle but since you did not sign a reaffirmation agreement, they are not able to come after you for the balance owed on the vehicle after they sell it at an auction.


Whether or not you should enter into a reaffirmation agreement depends on your individual circumstances. Discussing your specific circumstances with your bankruptcy attorney can help you decide what is best for you and your future.


Pedersen Law Office, LLC offers free consults in all of our areas of practice and will meet with you personally to discuss your specific circumstances and see what options are available for you. Our law office serves the communities of Appleton, Neenah, Menasha, Oshkosh, Green Bay and their surrounding areas.

Category: Bankruptcy

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