How Does Reaffirmation Of Debts Work In Chapter 7 Bankruptcy?

There are two main types of bankruptcy filings you can use if you need major debt relief, and a lot of people choose Chapter 7 if they are eligible for it. Chapter 7 is a good option because it wipes out debts you have, and you will then no longer be responsible for them. The downside is that you can lose some of the assets you have; however, there is something called reaffirmation of debts in Chapter 7, and this could help you keep some of the valuable things you own.

What Is Reaffirmation Of Debt?

Reaffirming a debt is a process you can use to keep an asset you own, but it cannot be used for all assets you own. To reaffirm a debt as a way of keeping an asset, you must meet several requirements. Here are the main three requirements you will need to meet:

  1. You must owe money on the asset you want to keep and reaffirm.
  2. There must not be a lot of equity in this particular asset.
  3. You will need to demonstrate some type of proof that you need to keep this asset.

This process is typically used for car loans and mortgages, and it is designed to let you keep your house and car. If you own several cars, you may not be allowed to use this process for each of them. The trustee will however typically let you keep one of your cars so that you have a way to get to and from work.

How Do You Use This Process?

When you file for Chapter 7 bankruptcy, your attorney will help you decide if you have any assets that you could reaffirm. If so, your attorney will send a letter to the creditor asking them to reaffirm your debt. What this means is that the lender will agree to keep the loan with you even though you are filing for bankruptcy, and the terms of this loan will stay the same.

It is very important to make sure you continue making the normal payments on this debt if you decide to use reaffirmation as a way of keeping an asset you own. If you fall behind on your payments, the lender is more likely to deny your request to reaffirm the debt. Lenders typically approve reaffirmation requests, but they may deny them if they do not believe the borrower will be able to continue making the payments on time.

If you are interested in learning more about bankruptcy and reaffirming the debts you owe, contact a bankruptcy attorney in your area.

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