Two common misconceptions about bankruptcy are that you don’t get to keep anything, and that you don’t have to pay for what you do keep. In truth, bankruptcy allows you to keep things, but you do have to continue to pay for what you keep. Because bankruptcy was designed to give the honest but unfortunate debtor a fresh start, it is important to remember that a fresh start is not the same as a head start. You will not be permitted to act in a way that gives you an advantage you would otherwise not have. This means that if you want to keep your home, car, boat, or motorcycle, you will have to maintain payments for those items of collateral.
The document that allows for the keeping of items in bankruptcy is called a reaffirmation agreement. By definition, a reaffirmation agreement is a new contract. The debt for certain pieces of collateral is reaffirmed, which means an affirmation to make payments. Reaffirmation agreements should not be entered into lightly, and consideration of one requires the advice and guidance of an experienced bankruptcy advocate. The common pieces of collateral reaffirmed include:
- Recreational vehicles
Typically, motivation to keep the family home drives the majority of reaffirmation agreements. The benefit of signing a reaffirmation agreement is that the creditor will still be permitted to discuss the debt with you once the bankruptcy case is over. Without a reaffirmation agreement in place, the debt is technically no longer owed after the bankruptcy case is discharged. Without a valid debt in place, lenders are unable to communicate with you about the loan. This results in an inability to negotiate with your lender, if you fall behind on payments after the bankruptcy case closes. While the ability to continue communication with your lender is important, keep in mind the reaffirmation agreement also means that, if you are unable to pay, you can now be sued for the debt. There is no protection against a lawsuit after the bankruptcy when a debt is reaffirmed.
The decision to reaffirm a debt is a personal one. When considering reaffirmation, do so in conjunction with authoritative advice from competent counsel. Your situation is unique, as are your needs and budget. Engage in meaningful conversation about your post-bankruptcy needs with an experienced bankruptcy attorney.
A reaffirmation agreement must be carefully considered. The benefits must be weighed against the risks. Consult a bankruptcy attorney and discuss the specific facts of your case.