Reaffirmation in Bankruptcy

If the mere thought of bankruptcy brings you images of homelessness and poverty, you may have a very limited understanding of what the process entails. In fact, people are able to remain in their homes or can keep their vehicles in many situations. One tool that may bring you comfort is reaffirmation.

Understanding Reaffirmation

Considering filing for bankruptcy is a major decision that must be weighed carefully, so it’s a good idea to start out with the facts. In a Chapter 7 filing, reaffirmation is an agreement allowing debtors to hang on to a particular piece of property — usually a vehicle or home — with the commitment to repay the associated debt. The terms for that debt may either remain the same or be renegotiated, but the bottom line is that the debt is not discharged with other debt in the bankruptcy. There are some pretty significant benefits to this:

• Obviously, retaining the property means it’s still yours to use and enjoy.
• As you make payments, you are working to improve a damaged credit score.
• You maintain control of the secured debt, offering stability throughout an otherwise jilting experience.
• Rather than fighting with bill collectors, you go back to maintaining a positive relationship with the creditor.
• In many cases, payment and/or interest requirements are adjusted to make them more manageable.

Cautions

It’s important to note that a reaffirmation agreement is not for someone who just happens to really like their car or home and be reluctant to part with it. As with any legal agreement, there is also the potential for problems. Because the home or vehicle is not a part of the bankruptcy agreement, the debtor is solely responsible for payments, and if those payments are missed, the possibility of repossession by the creditor is very real. You will still be stuck owing any back payments, and may even have your wages garnished to collect.

Court Approval is Required 

Because of the seriousness of a reaffirmation agreement, entering into the contract will require the approval of the court, who will consider whether it’s reasonable to expect a debtor to be able to make the necessary payments. Since financial strain brought one to bankruptcy court in the first place, it’s important to ensure the payments won’t be too high a burden at the end of the day. It’s in everyone’s best interest for a debtor to hang on to property like this only if repayment is feasible.

Negotiating for You

The experienced Miami bankruptcy attorneys at The Law Office of Julia Kefalinos understand the complexities of these situations, and always negotiate to achieve the best possible outcomes for you. To discuss, schedule a confidential consultation in our Miami office today.