After a debtor’s
Chapter 7 bankruptcy case is completed, most of their debts will be discharged. That means
the debtor will not be required to make payments and the creditor cannot
take action to collect on unpaid loan balances.
Reaffirming Debt to Keep Property
In cases where the debtor had a secured loan – where property, such
as a car, is used as collateral – the creditor may be able to take
the secured property and sell it to recover funds for the remaining loan
balance. To prevent the creditor from enforcing the lien after a bankruptcy,
the debtor would need to enter into a reaffirmation agreement.
The agreement is a contract between the debtor and creditor in which the
debtor agrees to make payments on a specific loan so they may keep the
property. Essentially, the loan will not be discharged with the other
debt covered in the bankruptcy.
Filing a Request During Bankruptcy Proceedings
To enter into a reaffirmation agreement, the debtor or creditor must submit
a request during the bankruptcy case. Because the agreement allows a debtor
to keep a loan even as they are filing to have other debts discharged,
a judge must review the request to ensure the debtor can feasibly manage
the loan and it won’t create an undue financial hardship.
If the debtor does not have an attorney, they will need to attend a reaffirmation
hearing to argue their case. However, if they do have a lawyer, they must
provide a signed agreement stating that the loan will not put a strain
on their finances. Ultimately, the judge will decide whether or not to
approve the request.
Advantages and Disadvantages of Reaffirming Debt
The benefit of entering into a reaffirmation agreement is that the debtor
will be able to keep the property as long as they continue to make payments.
However, when an individual reaffirms a debt, they are contractually obligated
to make payments on that loan until it is paid off. If they fail to do
so, the creditor can repossess the property and pursue a lawsuit against
the debtor for the remaining loan balance.
Contact Albaugh Law Firm for a Free Case Evaluation
If you are struggling to stay on top of your loan payments, our attorneys
at Albaugh Law Firm help you understand your
debt defense options. We will discuss your situation with you to find a solution that
meets your needs and helps you get a fresh start.
For experienced legal guidance, call us at (904) 637-1839 or
contact us online.