When you file for chapter 7 bankruptcy, you have the following options for dealing with secured creditors.

1.     Reaffirm the debt

2.     Redeem the collateral

3.     Surrender the property

4.     Retain the property and continue to make payments

Today, I would like to take a closer look at reaffirming the debt.

When you declare chapter 7 bankruptcy, your legal obligation to pay a secured debt is eliminated. If you want to keep that asset, you are usually asked to reaffirm, or re-promise, to pay the debt.

It is very important to be sure that you can make all the payments after reaffirming any debt, because there are big penalties involved if you fail to do so.

What is the reaffirmation agreement?

The reaffirmation agreement is a contract that establishes your rights and obligations concerning secured debt and has to be approved by the bankruptcy court to become effective.

Oftentimes, reaffirming a mortgage or car loan will leave you in a very similar position as before you filed for bankruptcy. You are still legally obligated to pay the full amount of the debt, regardless of what the property is worth and whether you keep the property in the future.

If you reaffirm the debt and your property gets stolen, destroyed or repossessed in case you cannot make the required payments, you will be legally liable for the balance.

A reaffirmation agreement is required if you want to keep you car, truck or boat. This is a court requirement that applies to personal property, which is essentially any property other than your house. If you don’t sign a reaffirmation agreement for example on your car, they have the legal right to take away your car, even if you are current on your payments.

However, you can also retain your property such as a car and continue to make the payments without reaffirming the debt.  Although the creditor can take your car they often will allow you to keep the car if you continue to make your payments on time.

It is not required that you sign a reaffirmation agreement if you want to keep your house. You can keep you house simply by staying current on all you payments for the house.

Usually, mortgage companies will not send a reaffirmation agreement because of this.

Please contact our Sacramento office serving Elk Grove at 916-313-9069 or via email at info@california-bankruptcyattorney.com for a free consultation.