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What is reaffirming a debt in Chapter 7 bankruptcy?

On Behalf of | May 12, 2023 | Bankruptcy

Bankruptcy is frequently viewed as a last resort for Californians and people across the nation who find themselves buried in debt. Often, they have negative perceptions about it and this prevents them from looking at it objectively.

People who have amassed debt they cannot hope to pay and are dealing with the constant stress and borderline harassment that goes along with it should know that personal bankruptcy can be worthwhile. However, every case is different and people need to be fully aware of their own situation and how the process can help them individually.

When might I want to reaffirm a debt in Chapter 7 bankruptcy?

Although Chapter 7 is a liquidation bankruptcy where a person’s property might be sold to pay back creditors, most people who choose Chapter 7 over Chapter 13 do not have many valuable items, if any. For example, a person who owns a home would likely choose Chapter 13 to formulate a payment plan and keep the property.

Chapter 7 clears all unsecured debt like medical expenses and credit cards. Still, just because a person is filing because they have amassed unsecured debt does not mean they do not also have secured debt. If they do not want to file for Chapter 13 or do not qualify, they could file for Chapter 7 and be confronted with secured creditors seeking payment.

Reaffirming a debt lets the debtor keep the secured property. This is an agreement that the debtor will continue to be liable to the creditor and make all or some of the payments for the item. The creditor will not repossess the property. This must be done prior to getting a discharge. There will be an agreement to reaffirm the debt and it will be filed with the court. Those who have an automobile they need and would otherwise be repossessed can benefit from this type of arrangement.

Knowing the facts about Chapter 7 can help with deciding on a path forward

It might seem to be contradictory to think about filing for Chapter 7 bankruptcy to clear debt and then to “reaffirm” other debt that could be cleared. However, for Californians who are using a Chapter 7 liquidation to get out from under onerous financial obligations like medical expenses, credit card bills and other unsecured debt, it might be beneficial to think about reaffirming some debts to retain property that might otherwise be taken and sold. For help with these decisions and successfully filing, it is imperative to have qualified guidance from the outset.