For as long as I have been a bankruptcy lawyer (and a dyed-in-the-wool skeptic – my mom was from the Show Me State), I am always surprised to hear some of the first words from a potential client telling me that they want to reaffirm their car or mortgage before we’ve even gotten into their financial situation and why they’re thinking of bankruptcy in the first place.
I like to slow down the conversation at that point. We’ll talk about reaffirmation, but I want some other information first.
What Is Reaffirmation In Bankruptcy?
First, reaffirmation only applies in Chapter 7 bankruptcy. Second, reaffirmation typically applies only to secured debts (debts where the creditor can take collateral – such as a car or house – if the debtor doesn’t pay the loan). I have had clients ask about reaffirming unsecured debts, primarily credit cards, because they wanted to keep a credit card after they filed. I would never advise someone to reaffirm an unsecured debt. The whole point of bankruptcy is to eliminate debt that you can’t afford to pay. Reaffirming a credit card debt would do the exact opposite.
If you are behind on a car loan or home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If you choose to reaffirm a loan, you agree to be legally obligated to pay the loan, despite filing bankruptcy.
If the lender agrees to give you time to get caught up on a default, this may be a good reason to reaffirm. But think about this: if you were having a hard time keeping up with your payments before you filed bankruptcy and you are still struggling making ends meet, reaffirmation may be a mistake.
If you reaffirm, the debt will not be canceled by bankruptcy. If you fall behind on a reaffirmed loan, you can get collection calls, be sued, and possibly have your wages garnished or other property taken, such as money in a bank account.
If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.
To learn more about whether or not Chapter 7 bankruptcy or Chapter 13 bankruptcy is your best option, schedule your free, confidential bankruptcy consultation with an experienced Denver, Colorado bankruptcy attorney today. Our online scheduling system allows you to schedule a bankruptcy consultation at a time that is convenient for you.