What Is Loan Reaffirmation In A Chapter 7 Bankruptcy?
When you file for Chapter 7 bankruptcy, you have the opportunity to discharge the majority of your debts and start again with a clean financial slate. Also referred to as liquidation bankruptcy, Chapter 7 may be beneficial for you if you are overwhelmed with credit card debt, mortgage payments, car loan payments, medical expenses and other bills that have been following you around for years. There may be, however, some property that you do not wish to part with once your bankruptcy is finalized. Whether you want to stay in your family home or want to keep your car, you may want to consider reaffirming your loan.
A loan reaffirmation is an agreement made with a lender to repay some or all of a debt, even after you have declared bankruptcy. Rather than write off a loan to bankruptcy, you sign a contract to continue making payments, and are then able to keep the property associated with the loan. In many cases, the financial institution will make special arrangements, making it easier for you to make payments on the loan. You may receive a lower interest rate or a reduced monthly payment amount to help facilitate your agreement to make regular monthly payments. Not only does this allow you to keep the property, but lenders are able to collect the debt rather than have to lose money on the loan.
Before you reaffirm a loan, it is important to make sure you have the funds available to continue making payments in a timely manner. You do not want to escape from overwhelming debt and expenses only to find yourself back in a cycle of being unable to pay for your loan.
This information is intended to educate and should not be taken as legal advice.