When credit troubles finally land a family in Chapter 7 bankruptcy, they may have assets they wish to keep, such as a car or a home. This can be done by reaffirming the debt, but the decision to do so should not be taken lightly.
Each State has its own bankruptcy laws, so if you’re considering this, you should become familiar with those laws and how they might affect you later.
Reaffirming means that even though all your debts have been wiped out through the bankruptcy, you are now re-establishing a specific debt and promising to pay as agreed. This is almost like opening a new credit account. In most cases, unless you reaffirm, you’ll no longer receive monthly statements and your payments won’t be reported to the credit bureaus.
When the property in question is your home, as long as you keep making those payments, you should not be in danger of foreclosure. Even without the monthly statements, your payments will continue to be credited against your debt and you’ll eventually own the home.
However, since you want to begin rebuilding your credit, you want your statement and you want your payments reported to the credit bureaus.
Whether or not to reaffirm is something you should discuss with your attorney and consider carefully. If there is a danger that you won’t be able to continue with the payments and will need to walk away from the house, you should think twice.
If you reaffirm and later decide to let the house go, you could be held liable for some of the balance owed. If you have not reaffirmed the debt, you would be free to walk away without further liability. Again, this depends upon the laws in the State where you reside.
Cars are another matter, and the judge may or may not allow you to reaffirm the debt. In most cases, if it is not reaffirmed, the car will be repossessed, even if you continue to make the payments. Different lenders have different policies, so you need to contact them and come to an agreement.
In many cases, it’s easier to simply let the car and the debt go, then buy a new one. You may pay a higher interest rate, but it’s rare that a person would be unable to purchase a car after a bankruptcy. The difficulty lies in the fact that your choices will be limited, so you might not get the car you’d prefer to drive.
When you get a new car loan, be sure that you are borrowing from a company that reports to the credit bureaus. After a bankruptcy, every financial transaction you enter into should be done with consideration for rebuilding your credit scores.
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