Reaffirmation Agreements in Bankruptcy

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Our Bankruptcy Attorney Discusses How to Keep Property in Chapter 7

Chapter 7 bankruptcy has some key differences from Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you pay back a portion of your debts in a three-to-five-year repayment plan. With a Chapter 7 bankruptcy, the Trustee gathers and liquidates your nonexempt assets. These are assets that you cannot exempt from the bankruptcy estate. Some types of assets are exempt, meaning you can keep them despite filing a Chapter 7 case. However, there could be additional options for keeping certain assets during bankruptcy. You may also be able to enter into a reaffirmation agreement with the creditor.

Our DC and Maryland bankruptcy attorney can answer any questions you have about filing a Chapter 7 case. Contact our bankruptcy attorney to schedule a free initial consultation. Keep reading to learn more about reaffirmation in bankruptcy.

What Is a Reaffirmation Agreement?

When you reaffirm a secured debt in Chapter 7 bankruptcy, you enter into an agreement with a creditor to continue making payments on the debt. You would enter into a new contract with the creditor and submit it to the bankruptcy court.

If you reaffirm a secured debt, the creditor’s lien on the collateral and the promissory note survives your bankruptcy case. When you reaffirm a debt, it is like you never included it in your bankruptcy case in the first place.

What Is a Secured Debt?

Reaffirmation can help you keep a secured debt out of bankruptcy. In some cases, a lender may ask you to secure a loan with collateral. Collateral may be a piece of property, such as a home or vehicle.

When you secure a loan with collateral, it creates a lien, a type of ownership interest on the property. If you stop making payments on a loan secured by collateral, the lender may take the property in question. For example, if you stop making vehicle payments, your lender may take the vehicle because it has a lien.

Secured debts are debts that creditors have collateral on. Examples of secured debts include:

  • A home
  • A vehicle
  • Electronics

In a bankruptcy case, the lender would seek reimbursement by filing a secured claim. The lender may ultimately sell the property in question. However, a reaffirmation agreement is a possible option if you want to keep the property.

You may be able to reaffirm electronics you purchased with a store credit card or installment plan. These are generally easier to reaffirm because the value of the loan is not as significant as a home or vehicle.

Should I Make a Chapter 7 Reaffirmation Agreement?

Whether you should enter into a reaffirmation agreement with a creditor depends on the circumstances. Reaffirmation may not always be an option, or if it is an option, not a good one.

If you want to keep the secured property in question and can afford payments, then you could consider a reaffirmation agreement. There are some potential legal risks involved with reaffirmation agreements, at least for some filers. You cannot discharge a reaffirmed debt for six years. The creditor will likely take legal action against you if you fail to make payments. For these reasons, you should be absolutely sure that you can abide by the terms of an agreement.

Our DC and Maryland bankruptcy attorney can answer any questions you have about reaffirmation agreements, including the possible risks or benefits.

Are There Other Options for Keeping Property in Chapter 7 Bankruptcy?

There may be other options for keeping property during a Chapter 7 bankruptcy. The property you want to keep may be exempt from the bankruptcy estate. You may also be able to simply purchase the asset or property in question, but this is understandably not an option for most bankruptcy filers.

Contact Our DC and Maryland Bankruptcy Attorney for a Free Initial Consultation

You should speak with our DC and Maryland bankruptcy attorney if you want to explore reaffirmation further or to discuss other options for keeping property during bankruptcy. Schedule a consultation with our DC and Maryland bankruptcy attorney by dialing (202) 483-6070 or by using the contact form on our site.

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