Sacramento Bankruptcy Attorney serving Lincoln discusses why people chose to re-affirm debts during the process of a Chapter 7 or Chapter 13 bankruptcy as well as some consequences

Most clients are seeking to discharge as much debt as possible through a Chapter 7 or Chapter 13 bankruptcy so they can use their remaining savings, assets, and income to their best advantage as they start over financially.

In my experience as a bankruptcy lawyer, however, I see people who don’t want to get rid of 100% of their debts.  Yes, there are certain types of debt that are popular choices for reaffirmation (bankrupt debtor chooses to sign an agreement to pay them), even though that debt was eligible for discharge through bankruptcy.  Here’s two of the most common reasons for debt reaffirmation:

1.     Reaffirmation for the purpose of keeping an asset.  Certain assets do not fall into either the dischargeable debt (liquidated by filing) category nor is it an exempt asset (entitled by law to keep).  For instance, many people choose to re-affirm their car loan in order to keep that particular car.  They may also have heard that reaffirmation of such a debt may have the advantage of making consistent payments on a reaffirmed debt may also count toward rebuilding one’s credit rating.

2.     Reaffirmation because the debt is owed to friends and relatives (or because they feel it is the “right thing to do.”)  Because this is an emotion-based area, you’ll definitely want to discuss it with your attorney because of potential bad consequences.  I’m referring to the fact that payment or reaffirmation of such a debt may appear to give preferential treatment to one creditor over another.  I generally do not recommend reaffirming these types of debts.

Think carefully about your other creditors and your overall budget if you decide to reaffirm a debt during bankruptcy.  And remember: Once you have a late or missed payments on the re-affirmed asset, your creditor can seize the property and try to collect the difference between the assets value and the remaining amount of the debt.  Now you’re back to square one and all the credit repair progress is gone too.

Other questions to discuss with attorney:  is it better to re-affirm an asset that has liens on it, or whether you should file a Chapter 13 repayment plan instead?  Everyone has different “what if” questions that need answers before filing bankruptcy.

An experienced bankruptcy attorney can help you determine your legal strategy and action plans in light of your income, assets, and the nature of your debts.  This analysis will enable you to best use the provisions under a Chapter 7 or Chapter 13 bankruptcy to achieve your financial goals.  Please contact our Sacramento office at 916-313-9069 or via email at info@california-bankruptcyattorney.com