What is “Reaffirming” Secured Debt?
With a Chapter 7 bankruptcy, you need to disclose whether you intend to keep or give back certain things, like your house or your car. If you want to keep something and continue paying on it, though, your lender can still choose to take it back unless you “reaffirm” the debt. Following are the pros and cons of reaffirming debt.
When you reaffirm debt, you’re agreeing that you will still owe the debt after your bankruptcy case is over. For example, if you owe $10K on a car, at the end of bankruptcy proceedings, you will still owe money on the car, even though your other debts were cleared.
Pros of Reaffirming Debt
- If you reaffirm debt, your lender will continue reporting your payments to credit reporting agencies, which will help rebuild your credit sooner.
- When reaffirming debt, you are signing a new contract, which gives you the freedom to negotiate lower loan terms than your initial agreement.
- If you don’t reaffirm the debt, your lender can still take your property back (repossess).
Cons of Reaffirming Debt
- If you reaffirm debt and don’t make the payments, the lender can not only repossess the property, but can also sue you for deficiency afterwards. Here’s an example. If you owe $10,000 on a property worth $6,000, and the lender repossesses and sells it for $6,000, the lender can sue you for the deficiency of $4,000 (the difference between the loan balance and the sale price). This is why you must carefully consider all factors before considering reaffirming any debts.
If you are not sure what the right solution is for you, an experienced debt relief law firm such as Harold Shepley & Associates would be able to answer your questions with a free consultation. Contact us today at 1-866-284-7062 or visit us at www.shepleylaw.com to find out more information on your debt relief options.
April 23, 2012 Posted in Bankruptcy, Chapter 7, Credit, Debt Tagged case, chapter 7 bankrupty, Credit Report, proceedings, property, reaffirming debt, secured debt Leave a comment
