If you use Chapter 7 for debt relief purposes and own a car or house that you want to keep, your bankruptcy lawyer will discuss reaffirming the debts. Reaffirming debts in Chapter 7 bankruptcy is a common event, but you should evaluate it before going through with it. Here is an explanation of what a reaffirmation agreement is and the pros and cons of using these agreements in bankruptcy.
What a Reaffirmation Agreement Is
A reaffirmation agreement is a standard tool used in Chapter 7 bankruptcy cases, and people use it for one specific reason. If a person owns something and has a loan on the item, the person can use a reaffirmation agreement to keep the asset and the loan through a Chapter 7 case. Signing the deal tells your lender that you want to keep the asset and agree to continue paying the loan as agreed. The lender receives this form and signs it if they are willing to let you keep the asset through your Chapter 7 case.
The Pros of Using Them in a Chapter 7 Bankruptcy Case
Using a reaffirmation agreement is not necessary in a Chapter 7 case, but it does offer a couple of benefits. The first benefit is that you can keep the asset. If this asset is your house or car, signing the agreement allows you to keep the item, which is a positive thing. The second benefit is that keeping the asset allows you to rebuild your credit faster. Your lender will continue posting updates to your credit report relating to your payments, which helps you rebuild your credit. The other benefit is that you will not have to find a way to buy a car or house after bankruptcy, because you will already have these things.
The Cons of Using Them
The main downside to using a reaffirmation agreement is the potential for a deficiency judgment. This risk only comes into play if you default on the loan after reaffirming the debt. If you reaffirm the debt and fail to pay your loan, the lender can repossess your car, and you will owe the deficiency on it. If you do not reaffirm your debt, the lender cannot pursue collections on the deficiency if you default.
Discuss this subject with your bankruptcy lawyer before deciding which way to go. If you have further questions about bankruptcy, contact a bankruptcy attorney today.
