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Reaffirming a debt in bankruptcy court

Is Reaffirming a Debt in Bankruptcy Court Ever a Good Idea?

As you navigate bankruptcy, you will learn that there are many ways to decide how to manage debt. If you have a secured debt, or a loan in which you have pledged some assets as collateral, you will be required to choose exactly what you would like to do with the loan. You might decide to surrender the item involved in the loan or you might decide to reaffirm the loan in bankruptcy court.

A reaffirmation occurs when you waive the discharge of a debt and state to the court that you will be responsible for the amount regardless of what happens in the future. While some people decide that they want to reaffirm a debt because they want to maintain the item involved, the reaffirmation decision involves various nuances.

Reasons You Might Decide to Reaffirm a Secured Loan

There are several tangible advantages that you can realize by deciding to reaffirm a loan. These advantages include:

  • Perhaps the most obvious advantage of reaffirmation is that you will be able to keep the property involved. If you choose not to reaffirm the debt, you may have to give up the property, which might not be something you are prepared to do.
  • Reaffirming a debt is one of the ways to begin rebuilding your credit after bankruptcy. By agreeing to continue to repay a debt and then meeting monthly due dates, you can take a substantial step toward taking control of your financial future.
  • In some ways, reaffirming a debt makes things much easier. By failing to reaffirm a debt, you will need to pay on the outstanding amount, send your invoices to the creditor, and often pay through check rather than electronically.

Reasons to Think Twice About Reaffirmation

Despite the benefits provided by debt reaffirmation, there are some reasons to think twice before deciding to continue paying on a debt. Some potential risks presented by reaffirmation include:

  • Reaffirming means that you are still on the hook. Consequently, if you end up unable to pay this amount after the bankruptcy has concluded, the creditor will be able to both seize the item from you as well as sue you for the remainder of the balance. While bankruptcy is designed to help you escape existing debt obligations, reaffirmation means that you will still be on the hook for a debt.
  • There is a risk that a vehicle is damaged, has mechanical problems, or is totaled. Even if you have insurance, you will only be compensated for the fair market value rather than the amount of the secured loan. This means that potentially, in the worst case, you might end up having the object destroyed and still owe a balance on the item.

Contact a Skilled Bankruptcy Lawyer Today

Deciding whether reaffirming a debt is a good idea depends on many unique factors. As a result, this decision is not one to be made lightly. If you need assistance in deciding whether reaffirmation is right for you, it can help to speak with a knowledgeable bankruptcy attorney. Contact Dworken & Bernstein today.

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