Reaffirming Debt In Chapter 7 Bankruptcy

Chapter 7 Bankruptcy provides debtors with the opportunity to break an overdue contract with their lender and have the remaining debt discharged. However, when bankruptcy defendants want to retain a certain piece of their secured property, they will need to execute a reaffirmation. This process holds the defendant responsible for the specific property’s debt in order to keep the lender from securing the asset, also known as collateral. Once the creditor and the debtor come to an agreement, they will enter a new reaffirmation contract that will subsequently be given to the bankruptcy court.

By signing the reaffirmation agreement, debtors understand that they will be held responsible for the secured property’s debt after the bankruptcy case is closed. Those filings for bankruptcy are legally bound to pay the amount owed even if there is damage to the property. Deciding to seek reaffirmation should be intelligently considered due to the fact that any outstanding debt from the secured property will remain, despite the bankruptcy discharge being granted.

Both the lender’s lien on the collateral and the defendant’s responsibility for the amounts due are completely separate from the proceedings in Chapter 7 bankruptcy, acting almost as if bankruptcy had never been filed for that particular account or debt. In order to reaffirm a debt, all loan installments must be paid and proof of bankruptcy exemption for the property is required in order to confirm that equity in the secured asset is protected.

Reaffirmation Advantages

Staying current on loan payments is one of the most important binding regulations for upholding the terms under the reaffirmation agreement, otherwise the creditor has the right to take the property away. There is also the possibility that debtors can negotiate and reduce their payments, interest rates, and the total amount owed by amending the terms. It takes an experienced bankruptcy lawyer to skillfully handle reaffirming debt in Chapter 7 bankruptcy. Thankfully, our West Palm Beach attorneys are experts in contract term negotiations and navigating court proceedings.

Reaffirmation Restrictions

Before even considering reaffirmation in Chapter 7 bankruptcy, the plaintiff needs to ensure that the property he is interested in keeping would normally be protected under bankruptcy exemptions. Otherwise, the trustee has the ability to sell it and use the money to pay back the creditor that is owed for the property. If the property with a lien is exempt, then the debtor and the lender must come to an agreement upon any changed terms within the reaffirmation contract.

Reaffirmation Legal Proceeding

The bankruptcy defendant must file the reaffirmation agreement in court during the bankruptcy case proceedings. If legal counsel is present, he must sign the agreement and confirm that it will not further harm the defendant’s financial status. The judge will consider whether or not the reaffirmation would harm the plaintiff’s post-bankruptcy budget and if the reaffirmation payments would be able to be made on time and in full. The reaffirmation may be rejected when the judge considers that the debtor will not be able to make the payments after budgeting for basic living expenses or if the debt owed is more than what the property is worth.

Our West Palm Beach attorneys strongly suggest having legal representation during such cases, as the reaffirmation paperwork and process can be extremely technical and tedious. If you or someone you know is considering reaffirming debt under Chapter 7 bankruptcy, schedule a consultation today.