When You Want to Hold Onto Certain Debts
The whole idea of chapter 7 bankruptcy is to leave as much debt as possible behind. There are some cases, however, in which you might want to reconsider and carry debt forward. Read on to find out why you would agree to keep the debt and how to do so.
Secured Debts and Reaffirmations
Your bankruptcy debt is divided into secured and unsecured. Secured debt is anchored by the property itself. For example, a home and a vehicle loan that have balances are secured by the home and the vehicle or the collateral. When you can be foreclosed on or have a car repossessed, that is secured debt. On the other hand, some debt is not anchored to property. Credit cards, personal loans, signature loans, and medical debt are thought of as unsecured since you won't lose any property as a result of not paying it.
When you declare bankruptcy, you can lose your property secured by a loan. This often happens with car loans. As long as you are up to date on your loan, however, you can continue to make those payments and keep the car. Since it will be more difficult to get approved for a car loan after a bankruptcy, keeping an auto loan in place is recommended. This is known as debt reaffirmation because you renew your pledge to pay the loan in spite of filing for chapter 7.
When Affirmation Is Not Possible
Unfortunately, not all loans can be reaffirmed. The overall goal of chapter 7 bankruptcy is to seize and sell off property owned by the filer and pay the proceeds to the creditors. Cars are primary targets of the bankruptcy trustee if the value of the car is higher than the loan balance. Though bankruptcy personal exemptions can help filers keep their cars, those exemptions may not be enough. As long as the loan balance exceeds the value of the car, you can probably reaffirm your loan.
How to Reaffirm a Debt
If you are concerned about losing property (and you should be), talk to your bankruptcy lawyer before you file. Doing so will provide you with a more accurate picture of what you might be risking when you file. If you have loans that can be reaffirmed and you wish to do so, the reaffirmation involves signing an agreement and making a pledge. If you fail to make the payments, which are usually the same payments indicated by the original loan, the car can be repossessed. While this pledge often happens at the creditor's meeting, it might be performed at any time in some places.
Speak to a bankruptcy law attorney to learn more about reaffirmations.