When Filing Bankruptcy Is the Best Option

Should You Reaffirm Debts In Chapter 7 Bankruptcy?

Certainly, the primary goal of Chapter 7 bankruptcy is to rid struggling Americans of debt that they can no longer pay. However, when those debts are attached to secured assets like your home or car, your bankruptcy goals may change. 

Most bankruptcy claimants have the option to reaffirm such secured debts. What does reaffirmation mean? Should you do it? And how can you make the best decision? Here's what you need to know.

What Is Reaffirmation of Debt?  

Reaffirming a debt is the process of signing an agreement to continue paying that debt voluntarily — even though it could be discharged in bankruptcy. In return, you can keep the asset held as collateral. It will be as though there were no bankruptcy filings where these are concerned. 

When Should You Reaffirm Debt?

Debt reaffirmation is a valuable tool to help you protect those assets you rely on most — usually your primary home or your means of transportation — and without which you may not be able to get by. 

However, you shouldn't reaffirm all debts just because you can. Most filers reaffirm only a very limited number of debts, so choose wisely. Select which debts you can afford to continue paying after whatever discharge relief you receive from other debts. You often must also be current on payments in order to qualify. 

Finally, some lenders will work with you to renegotiate the debt before reaffirmation. This can be beneficial if you're on the fence about reaffirming or if the original terms were onerous.

When Shouldn't You Reaffirm Debt? 

In general, there are two reasons not to reaffirm a debt. The first is when you cannot exempt all its equity. If your car is worth $10,000 with a loan balance of $5,000, for example, you must be able to exempt the $5,000 equity through normal bankruptcy methods. 

Second, consider carefully your motives and need to keep this debt. Is the asset truly necessary? Does it have overriding sentimental value? Or could you be better off letting it go? Reaffirming a debt only to wind up in the same financial bind later could be even worse than giving it up originally.  

Where Can You Get Help?

The decision to reaffirm or not to reaffirm is a serious one. Start by learning more about reaffirmation in your particular circumstances. Meet with a bankruptcy attorney in your jurisdiction today to begin the process.