People who file for Chapter 7 bankruptcy protection should beware that creditors will seek to coerce them into reaffirming their debts. During the Chapter 7 bankruptcy process, debtors must claim their personal property as exempt, redeem the property by making a single payment to the creditor for the value of the property or reaffirm the debt on personal property. When you reaffirm a debt, you agree to continue making payments on an otherwise dischargeable debt. This process allows you to keep personal property that secures a creditor’s purchase money interest, such as an auto loan. However, there are dangers associated with reaffirming debt after filing bankruptcy.
Reaffirmation agreements can be risky
There could be several good reasons for people to reaffirm debt. Sometimes, people may reaffirm an auto loan to maintain a vehicle for work-related transportation. Usually, you can use one of the state or federal exemptions to protect property from creditors. However, if your property falls outside of the exemptions and you want to keep the property, you should consult with a bankruptcy attorney to help you understand the risks of signing a reaffirmation agreement. Among other things, consider the following:
-The bankruptcy rules require debtors to either redeem or reaffirm property within 45 days of the first meeting of creditors. If the time passes and you haven’t made your choice, then the automatic stay can be lifted, allowing your creditors to pursue collections.
-Once you sign a reaffirmation agreement, the related property sits outside the bankruptcy estate. If you fail to make payments as specified under the agreement, then the creditor can initiate collection activity.
-Before the Bankruptcy court accepts your reaffirmation agreement, your attorney must certify that the payments will not cause undue hardship to you or your family. Furthermore, your attorney must attest that they fully advised you of the risks of reaffirming debt