Discharge and reaffirmation in bankruptcy

| Jan 8, 2020 | personal bankruptcy |

Most residents of the Chicago/Frankfort area look at bankruptcy as a means of shedding burdensome debt. Indeed, the only reason people file for bankruptcy is to get out of debt.

Why, then, would a person consider agreeing to continue paying on an obligation that could otherwise be discharged by an order of the bankruptcy court?

The answer lies in an examination of the nature of the debt and the benefits of signing a reaffirmation agreement.

Many personal assets are purchased by giving the seller a security interest in the asset in return for borrowing enough money to pay for the asset. The most common example is buying a car, where many people borrow money to pay for the car in exchange for the lender being given the right to repossess the car if the borrower defaults. Bankruptcy does not affect the enforceability of such security agreements. If the court discharges the debtor’s obligation to repay the debt, the creditor may treat the discharge as a default and take steps to repossess the car. This example applies to other types of credit purchases, such as some credit cards, and the purchase of expensive household goods, such as TV sets. Therefore, a debtor may wish to reaffirm the original credit agreement in order to keep possession of the asset securing the loan.

In order to reaffirm a debt, the debtor must complete and sign a reaffirmation agreement and file the agreement with the bankruptcy court. If the debtor was represented by an attorney, the lawyer must also sign the reaffirmation agreement. Before signing and filing a reaffirmation agreement, the debtor should review his or her post-bankruptcy financial situation to ensure that the reaffirmed payments are affordable.

Many reasons exist that may dissuade a debtor from reaffirming a debt, just as many reasons support such action. A debtor who is considering reaffirming a debt may wish to consult an experienced bankruptcy lawyer for advice on which choice to make.

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