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How to Decide if You Should Reaffirm a Debt

couple struggling with debt

When filing for bankruptcy, you may have to decide whether or not to reaffirm a debt. Choosing to retain debt that will last after your other debts are eliminated isn’t a decision you should make lightly. Read on to learn about reaffirming debt, and contact a knowledgeable California bankruptcy attorney with any additional questions.

Debt reaffirmation, defined

For Chapter 7 bankruptcy petitioners, reaffirming a debt you owe means you’re choosing to exclude it from the debts you’re discharging in bankruptcy. This is typically done in order to retain the collateral that is securing the debt. Most commonly, debtors choose to reaffirm car loans so as to retain their personal vehicles. If the debtor didn’t reaffirm these debts, they would be eliminated along with their other consumer debts in the bankruptcy filing, but the debtor would also lose the property that secured the loan.

Am I allowed to reaffirm my debt?

Generally, creditors are happy to reaffirm a debt, since it means that they’ll continue to make money from the debt rather than having to resell the property they repossess. That said, debtors will either have to be current on their payments for that debt, or they will need to become current in the near future. Your bankruptcy attorney may be able to help you negotiate with your creditor to obtain extra time to become current on your debt, or to reduce the amount you’ll need to pay to become current. In some cases, the creditor may even forgive the arrears you owe if you reaffirm the debt.

Should I reaffirm my debt?

Just because you can hang onto a piece of property on which you still owe money doesn’t mean you should. If the monthly payment for your property is an amount that will be just as difficult to make each month after your bankruptcy is complete as it was before you filed, then it may be a good idea to give up the property and move on. You wouldn’t want to end up back in debt or struggling to make ends meet, potentially damaging your credit by missing payments when you should be rebuilding it.

There are occasions when reaffirmation is in your best financial interest. If the payments are affordable, then reaffirming a debt can be a good way to rebuild your creditworthiness after your bankruptcy case is complete. It may also be a good idea to hang onto property you can afford if it would be difficult to get the credit you’d need to replace it after bankruptcy.

If you’re struggling with debt in Southern California and want help finding a way forward, contact the compassionate and experienced Ventura bankruptcy lawyers at Rounds & Sutter for a free consultation at 805-650-7100.