How to Keep Debts Out of a Bankruptcy Case
It is estimated that there are just over 640,000 bankruptcies every year in the United States because of medical debt. While a bankruptcy filing may seem final, this doesn’t mean that an individual cannot continue to pay other debts while seeking to eliminate a medical bill or similar cost. There are ways a person can keep certain debts out of a bankruptcy filing.
Reaffirm the Debt With the Lender
When you file for bankruptcy, you have the option of signing an agreement that declares that you will continue to pay a debt as agreed. For example, you may assert that you will continue to pay your car loan or mortgage while having other debts discharged. Once the debt has been reaffirmed, it may be more difficult to go back on your agreement. Therefore, it may be in your best interests to avoid doing so until the idea can be discussed with a bankruptcy attorney or other professional.
What Types of Debts Can Be Reaffirmed?
It is much more common to reaffirm a secured debt as opposed to an unsecured one. Debts such as auto loans and mortgages are secured by the assets themselves. There are many potential benefits to telling a lender that you will repay the debt as agreed and keep them out of a bankruptcy proceeding.
What Are the Benefits of Reaffirming a Debt?
Reaffirming a debt can allow you to keep your car or house during a Chapter 7 case. While state law may permit you to keep equity in a home or car, you might not be able to keep the asset itself. This could make it difficult to go to work or keep a roof over your head during your case and in the months after as you work to rebuild your credit. Furthermore, by making your car or mortgage payment on time, it will be easier to rebuild your credit history and improve your credit score in less time.
There May Be Limits on How Much Debt You Can Reaffirm
While a lender may agree to allow you to reaffirm a debt, a bankruptcy judge could decide that it is not a good idea for that to happen. For example, a judge might decide that you will have too much debt after the bankruptcy case is over. Generally speaking, this means that you wouldn’t have enough money to provide the basics for yourself or your family while making debt payments.
A judge could also choose to reject a reaffirmation agreement if he or she feels that it would not be in your best interests for any reason. The court may reject if it seems like you don’t truly understand what you are agreeing to or if you owe more on an asset than it is worth.
Remember, once you reaffirm a debt, you are generally required to pay the full balance regardless of what happens to the asset. While it is possible to file for bankruptcy again, you can’t file for Chapter 7 protection for eight years after your current case is over.
Creditors May Be Willing to Negotiate
Depending on the circumstances of your case, a creditor may be willing to negotiate a new payment as part of the reaffirmation process. Creditors might decide to lower your interest rate, forgive a portion of the outstanding balance or waive any fees that you have accumulated. In some cases, they will choose to do all three. Your lenders may be willing to be flexible as getting a portion of what they are owed now could be easier than not getting anything after the case has been completed.
If you are in need of a bankruptcy attorney, don’t hesitate to contact us at Neuner & Ventura LLP. You can get in touch with us in Marlton, New Jersey, by dialing (856) 596-2828. You can also contact us through our online form or visit our law office during normal business hours.