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Reaffirming Debt: Is it a Good idea?

Reaffirming Debt: Is it a Good idea?

When you file for bankruptcy protection, one of your goals is to get rid of your debt. To do so, the bankruptcy trustee may liquidate some of your property to pay your creditors. The property that the trustee can liquidate is called non-exempt property. What if you want to keep some of the property? The Bankruptcy laws provide certain exemptions that allow you to keep property by excluding it from the bankruptcy estate. In some cases, Chapter 7 debtors may want to keep personal property that a creditor is using as collateral for debt. You may be able to protect non-exempt personal property through redemption or reaffirmation. A debtor can redeem property by making a single payment to the creditor for the value of the property. In contrast, debtors can reaffirm debt by signing a contract to continue making payments to the creditor outside the bankruptcy process.

Following are some frequently asked questions regarding reaffirmation of debts:

How does reaffirmation work? Reaffirmation is process that allows debtors to retain property that a creditor holds a collateral interest. This debt is not discharged through bankruptcy and the debtor is bound by the terms in the agreement. Even if you are not current on your payments to the creditor, you can sign a reaffirmation of debt agreement. In addition to your commitment to make payments under the agreement, your attorney must certify that you received legal advice about risks involved with reaffirming debt. Your attorney also certifies that the payments will not pose an undue hardship or that you can make payments despite any hardship created.

When can I reaffirm debt? According to the law, you have 45 days from the first meeting of the creditors to sign a reaffirmation agreement. If you fail to reaffirm or redeem property within this time frame then the Bankruptcy Court can lift the automatic stay on non-exempt property, which will allow creditors to resume collection proceedings, such as repossession or garnishment.

What type of debt can I reaffirm? The bankruptcy law allows you to reaffirm debt associated with secured, non-exempt personal property. You are not allowed to reaffirm real property debt.

What happens if I can’t make payments after I reaffirm? Debtors who sign a reaffirmation agreement assume the risk that they may not meet their payment obligations. If you fall behind on your payments, the creditor can repossess the property and obtain a judgment against you for any remaining balance owed.

The bankruptcy process provides debtors legal protection from the collection practices of creditors. When you sign a reaffirmation agreement, you could negate your purpose for filing. Consult with an experienced Dayton bankruptcy attorney to help you navigate through the complicated process of bankruptcy.



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