If you have a car or a house you can keep it in a chapter 7 if you sign a reaffirmation agreement. A reaffirmation agreement is a document that you agree to be bond by the original terms of the contract. And that you are not discharging the debt.
Most of the time is is that simple. There are some rules in reaffirming debt. Your equity must still be exempt-able. That is usually not a problem in reaffirming a car. But a house the equity must be under $23,000 if you are single. Also you must be current on all payments and you must carry insurance on the collateral.
Reaffirmation agreements can be rescinded within 60 days or until you get your discharge which ever comes first. You are not required to reaffirm debt you can surrender the collateral.
Often times people think because they want to keep their car they do not have to disclose it on the bankruptcy. This is not true. All debt most be disclosed on the bankruptcy. If you are reaffirming it you still must disclose it. And that means the automatic stay will be in effect until the reaffirmation is filed with the United States Bankruptcy Court. So you will probably need to mail your payment on your own for a month or two when the case is first filed. What ever you do if you are planning to keep the collateral make sure you make your payment on time.
So you can keep your car and house through reaffirmation of the debt.
Equity loans or second mortgages are secured debt. Most likely the bank will want you to reaffirm it. If you are upside down on this second mortgage meaning you owe more on the first mortgage then the house is worth you can do a Chapter 13 reorganization bankruptcy and do a lien strip wiping out the second mortgage. You must remember that a second mortgage is secured debt. That means the lien will stay on your home. If you do not continue to pay it the second mortgage bank can foreclose. But you can continue to pay on it and not reaffirm it and as long as you stay current the bank most likely will not foreclose. Depending on the area for instance, in Brighton, Howell, or White Lake charter the Township the markets are good.
The biggest disadvantage to reaffirming debt is that once the rescission period has passed you are locked into that loan until its paid off. You can not discharge it in a later bankruptcy.Other disadvantage is that you have to pay the debt. And if you are in bankruptcy because of a high car payment reaffirming a car might not solve the problem that got you in bankruptcy. If you do reaffirm it does get reported on your credit report as good credit. Often time people do not reaffirm a mortgage and just continue to pay the mortgage payment. This is good strategy because if you default and get foreclosed on they cannot sue you for the balance. The problem is if you go to refinance it could prevent that from happening. Also your mortgage will show up on the credit report as discharged debt and your payments are not reported as good credit. But it is still sometimes wise to just pay the mortgage and not reaffirm it.
If you what to talk more about chapter 7 or chapter 13 bankruptcy or reaffirmation of debt please feel free to give me a call or email me directly at firstname.lastname@example.org
Consultation are always free at the Law Office of Doug Dern. We are a debt relief agency. We help people file for bankruptcy under the United States Bankruptcy Code.
This video explains the reaffirmation agreement in a Chapter 7 Bankruptcy.