Reaffirming Secured Debt In Chapter 7 Bankruptcy

One of the main pieces of misinformation about bankruptcy is that those who file must give up nearly everything they own so it can be sold to pay creditors. That is simply not the case. Through a combination of exemptions and reaffirming debts, most people can keep virtually any asset that is important to them.

What Is Debt Reaffirmation?

When you reaffirm a debt, you agree that you will still owe the money (debt) after your bankruptcy case is over. For example, you may have a car that you need to keep, so you may decide to reaffirm your intent to pay the car loan. Reaffirming debt is a common step in Chapter 7 bankruptcy and usually is not necessary in Chapter 13.

How Does Reaffirmation Work?

When you took out a loan for your car or other property, you signed a contract agreeing to pay back the money within a certain time and with a certain amount of interest (5 percent APR for 60 months, for example). If you later file bankruptcy and choose to reaffirm the debt, the court will first analyze your income, expenses and the value of the item. If the court determines that you can indeed make your payments, then reaffirmation will be allowed. Usually, the terms of the reaffirmed debt are same as the terms of your original contract.

Once approved for reaffirmation, you have 60 days to change your mind. After 60 days, the contract is considered permanent, and you must make your payments. Failure to pay can result in repossession of the item and your liability for the difference between the amount you reaffirm for and the amount the lender sells the car for at auction.

What Debts Can Be Reaffirmed?

Only secured debts can be reaffirmed. Items commonly considered are:

  • Vehicles
  • Large household appliances
  • Jewelry
  • Furniture

Debt reaffirmation can be particularly useful if you have aggressive creditors. As long as you make your payments on time, the creditor cannot take back the item.

When you visit Levitt & Slafkes, P.C., we will sit down with you and discuss whether reaffirming a debt would be a wise idea in your specific case. Our assessment of your situation will be honest and straightforward, so you can make an informed decision about whether debt reaffirmation fits your needs.

Contact Us Now For A Free Consultation

Our lawyers are ready to meet with you to discuss bankruptcy and options for holding onto your property. For a free consultation, please call 973-323-2953 or contact us online. Our office is conveniently located in Maplewood. We work with clients in Essex County and throughout New Jersey.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.