Tring to decide if you should reaffirm a debt in bankruptcy? A reaffirmation agreement is a contract between you and a creditor that agrees to keep a debt in place after bankruptcy. This means that you will still be responsible for paying the debt, even though it will be discharged in bankruptcy.
There are both pros and cons to reaffirming a debt. Some of the pros include:
- You will keep the asset that is collateral for the debt. For example, if you reaffirm your car loan, you will keep your car.
- You may be able to negotiate more favorable terms for the debt. For example, you may be able to get a lower interest rate or a longer repayment term.
- Reaffirming a debt can help you rebuild your credit after bankruptcy. Timely payments will be reported on your credit report.
Some of the cons of reaffirming a debt include:
- You will be liable for the full amount of the debt, even if the value of the asset that is collateral for the debt has decreased. For example, if you reaffirm your car loan and the value of your car has decreased, you will still be liable for the full amount of the loan, even if you cannot sell your car for enough money to cover the loan.
- You may lose the asset that is collateral for the debt if you cannot make the payments. For example, if you reaffirm your car loan and you cannot make the payments, the lender may repossess your car.
- Reaffirming a debt can make it more difficult to get approved for new loans in the future.
- Even if the lender allows you to keep paying on the debt after bankruptcy, your payments will not be reported on your credit report, since the debt was discharged in the case.
Overall, whether or not to reaffirm a debt is a decision that should be made on a case-by-case basis. Generally, you would only reaffirm a secured debt, such as a car or a home. Absent very unique circumstances, it is generally not permissible to reaffirm an unsecured debt. You should carefully consider the pros and cons of reaffirming a debt before making a decision. Keep in mind, reaffirmation agreements are only available in Chapter 7 bankruptcy cases. Also, there is a limited time to change your mind, called a rescission, so talk to your lawyer if you have changed your mind.
Can you reaffirm a debt after discharge? Not in the Northern District of Illinois. Don’t let a creditor tell you that you need to reopen your case and file a reaffirmation. It can’t be done.
Finally, in the Northern District of Illinois, the court must approve a reaffirmation. They want to see that it is reasonable, necessary, and affordable. Always, talk to your lawyer for specific advice about a reaffirmation.