Should You Reaffirm A Bankruptcy Debt? What To Know

Posted on: 20 August 2021

You might wonder why anyone would want to prevent a debt from being discharged with Chapter 7 bankruptcy. It's important to understand that not all debt is created equal. The category your debt falls into can matter quite a bit to the way things come out after the bankruptcy is final. Reaffirming a debt is a common part of bankruptcy for many. Read on to find out why this action is so meaningful to many individuals.

Unsecured Debt: Let It Go

Medical bills, bank loans, credit cards, personal loans, payday loans, and other similar types of debt all fall into the unsecured category. This form of debt has no property attached to it, so be sure to add all of those unsecured creditors to your debt matrix when filling out your bankruptcy paperwork. When the bankruptcy becomes final, you will be free of thousands of dollars in unsecured debt.

Secured Debts: Use Caution

Auto loans and mortgages are two very common forms of secured debt. Each one is secured by property, and if you discharge the debt, then the property can be taken too. Here is what filers need to know about dealing with secured debts during bankruptcy:

  1. If you are behind on a secured debt, it can be foreclosed upon or repossessed once the automatic stay is lifted during bankruptcy.
  2. You may be able to get caught up on a debt once you no longer have to pay any unsecured debts. If so, be sure you make every effort to do so after speaking with your bankruptcy lawyer.
  3. You have the option of including secured debt in your bankruptcy, but the property attached to the debt will be seized.
  4. If you are current on your secured bills, you may be able to do a reaffirmation of the debt. That means you promise to continue paying the agreed-upon monthly payments throughout and beyond the bankruptcy.
  5. Discuss the reaffirmation with your lawyer before you file for chapter 7 bankruptcy. The affirmation paperwork will be included with the filing.
  6. You may need to verbally swear to the reaffirmation at the creditor's meeting.
  7. As long as you continue to make the mortgage or auto payments as agreed, your property remains with you, and you will hold the title once the debt is fully paid.

It's important to budget carefully before you take on the burden of debts that will remain after the bankruptcy is final. To learn more about how secured debts are handled during bankruptcy, speak to your bankruptcy lawyer.