When you read about the difference between Chapter 7 and Chapter 13 bankruptcies, you may see that Chapter 7 requires you to sacrifice most of your assets. However, there is a way to retain specific assets. You can do so via a reaffirmation agreement.
What is a reaffirmation agreement?
A reaffirmation agreement is a voluntary legal agreement to continue payments on a particular debt. In return, the lender lets you keep the asset if you pay the debt.
Can I make a reaffirmation agreement on any debt?
You can only use it for debts for which you are up to date. For instance, you file for Chapter 7 due to combined debts you cannot pay. If you are behind on car payments, your car may be sold off. If, however, you had kept your car loan payments up to date despite defaulting on other debts, you could use a reaffirmation agreement to retain your vehicle.
Do I need to pay the whole debt on an asset I hope to keep?
A lender may choose to reduce a particular debt if you make a reaffirmation agreement. Or they might insist you pay the full amount.
What happens if I fail to make payments to which I’ve agreed?
If you fail to meet what you agree to in a reaffirmation agreement, the company you owe for that item can take it as collateral.
Reaffirmation can help your credit score
Bankruptcy will damage your credit rating. When you make a reaffirmation agreement, credit rating companies will take it into account. If you make payments on time, it will help your credit score recover.
If you are having problems with debt, seek legal advice early. An attorney can outline your options and advise on prioritizing particular debts to make a reaffirmation agreement possible.
