A reaffirmation agreement is a voluntary agreement that allows a borrower to hold on to certain types of debts that might otherwise have been discharged in bankruptcy.
For example, if you are filing Chapter 7 and wish to keep a house or a car for which you don’t have much equity, you may use a reaffirmation agreement to continue making your car or house payments and to remain in the house or keep the car.
When should you consider a reaffirmation agreement?
Reaffirmation agreements are useful, but they can undermine a financial fresh start. It’s very important that you use them only for secured debts that represent true needs and that you know for sure you can repay the reaffirmed debt.
If you live in an area with good public transportation, for example, it may be better to give up your car than to keep it and all of its associated payments. One of the major benefits of bankruptcy is it gives you the ability to downsize, budget, and start fresh.
In addition, there may be ways to replace the property for less money. Work with your bankruptcy lawyer to consider the interest rates that you’re paying right now versus what you might pay later.
Remember, you’re free to enter new debts after the Chapter 7 case is complete. In many cases, new lenders, particularly car loan providers, will start offering loans almost as soon as the ink is dry. The terms may not be very good (interest rates are generally higher), but you may also be able to get a much less expensive car at a much lower car payment.
Do reaffirmations come with special terms?
Many reaffirmation agreements require you to catch up on missed payments, so you should find out whether that is possible for you.
Sometimes, creditors also offer new terms for the deal. This can be helpful, but only if you can afford the new obligation.
What happens when you sign a reaffirmation agreement?
When you sign a reaffirmation agreement, you must start paying the payments on the debt once more, and the debt will be treated as if you’d never filed for bankruptcy where that specific debt is concerned.
Thus, if you miss another payment, the creditor may go right ahead and proceed with another foreclosure or repossession, and the automatic stay will not help you. Plus, you will not be able to file Chapter 7 again for another 8 years.
If you must keep a house or a car, it may be wise to ask your lawyer about Chapter 13 instead. You will be able to keep your property during a Chapter 13 bankruptcy so long as you are making your plan payments.
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If you’re considering bankruptcy, the possibility of filing a reaffirmation agreement is just one of the many issues you’ll need to address. Make sure you have qualified and experienced legal help on your side.
Contact Haysom Law to schedule a free consultation today.
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