Monday, December 2, 2013

Reaffirmation of Debt in Bankruptcy

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As part of the bankruptcy case, you are given the opportunity to "reaffirm" unsecured or secured debt. This involves signing an agreement with your creditor to reinstate your liability to pay and perform your contractual liability. The law only allows you to reaffirm a debt if it won't impose an "undue hardship" upon you or your dependents.                                                                                                   
Unsecured Debt
It is usually not advisable to reaffirm unsecured debt. The most common instance where unsecured debt is actually reaffirmed is debt with a credit union.           

Secured Debt
Secured debts, such as mortgages or car loans, are often reaffirmed. If a reaffirmation agreement is requested by your mortgage company or car loan company  it is generally advisable to reaffirm the debt if you intend to keep the collateral.  Mortgage and car loan lenders usually do not request or insist on a reaffirmation agreement and one is allowed to continue on making payments pursuant to the contract after the bankruptcy case ends. 

The risk in reaffirming a secured debt, especially a car loan, is that if you subsequently default and the collateral repossessed, you will be personally liable for the deficiency debt even though you filed for bankruptcy.