CHAPTER 7 BANKRUPTCY - REAFFIRMING DEBTS

The reason people file bankruptcy is to get rid of legal liability for their debts. In bankruptcy law terminology, this is called a "discharge."

The bankruptcy discharge eliminates your legal obligation to pay most debts, but not all.

Some debts (certain taxes, student loans, etc.) arc "non-dischargeable" and are excluded from discharge as a matter of law. If a debt is excluded from discharge, you remain personally liable for the debt and you are legally obligated to pay it. If you don't pay a non-discharged debt, the creditor can sue you in a court of law, and possibly garnish your wages, put a lien on your real estate, and seize your bank account.

You may waive dischargeability of a debt if certain conditions are met. You waive dischargcability of a debt by "reaffirming" that debt.

What exactly does "reaffirm the debt" mean in layman 's terms?
"Reaffirming a debt" means that the reaffirmed debt is not discharged in your bankruptcy proceeding.  You sign a Reaffirmation Agreement where you agree to remain personally liable to pay the full amount of the debt, just as if you had never filed bankruptcy.

Why would I reaffirm a debt?
Some secured creditors, mainly automobile lenders, require debtors to reaffirm their loan if they want to keep the collateral.  In other words, often you must reaffirm your car loan if you want to keep your car.   If the value of your car is about equal to the outstanding balance on your car loan, this may make sense.  However, if the value of the car is significantly lower than the balance of the loan, reaffirmation generally is not a good idea.  

What are my other options?
One option is to just “surrender” the car.  Give it back to the Lender and buy another car.  This option is surprisingly available to most debtors.  There are banks who are willing to lend money to debtors.

The other option is to “redeem” the loan.   Redeeming a loan means you pay the Lender the value of the collateral and the balance of the loan is discharged.  For example, you have a car worth $2,000 that has a $5,000 loan.  You can pay the Lender $2,000, the Lender discharges the balance of the loan and you receive title.  Most debtors do not have sufficient money lying around to redeem a loan.  Fortunately, there are Lenders who will loan you money to “redeem” car loans.  One popular provider is www.722redemption.com.  

What should I do?
The decision on whether to reaffirm, redeem or surrender a debt is a financial decision, not a legal decision.  There is no wrong or right answer.  I can advise you what I recommend but in the end, you must make the best financial decision for you and your family.