Reaffirming Debts During a Bankruptcy
Between March 2017 and March 2018, the number of bankruptcy cases filed in the United States dropped by 1.8 percent. Although the number of filings may be going down overall, there is still a chance that you will need protection from creditors. If you desire, it may be possible to reaffirm some debts and keep them out of your bankruptcy case.
What Is Reaffirmation?
Reaffirmation of a debt is a process during which you agree to repay a debt according to its current terms. You may choose to reaffirm a debt even if it is eligible to be discharged in a Chapter 7, 11 or 13 case. In order to commit to paying a lender as agreed upon initially, you will have to file form B240A with the bankruptcy court.
Does the Court Have to Approve a Reaffirmation?
In most cases, the bankruptcy judge in your case will need to approve the reaffirmation. Approval may not be granted if you owe more than an asset is worth. For example, if a vehicle is only worth $5,000, you may not be able to agree to pay a lender $10,000. Generally, there is no need to obtain court approval to reaffirm any debt secured by a home or other real property.
Why Would You Want to Reaffirm a Debt?
There are a couple of reasons why it may make sense to reaffirm a debt. First, it allows you to keep an asset during the course of the bankruptcy. For instance, by agreeing to make payments in a timely manner, you could avoid losing a car in a liquidation bankruptcy. Another good reason to continue to pay a debt is that it could help rebuild your credit after other debts have been discharged. Instead of having to take out a secured credit card or other token credit account, you can make payments to a lender with which you already have a history.
Can You Rescind the Reaffirmation?
It is generally possible to rescind the reaffirmation for up to 60 days after filing the proper paperwork with the court. If you do choose to rescind the reaffirmation, the asset could be liquidated or otherwise worked into a repayment plan.
A creditor could also move to have a debt included in a bankruptcy case if you fail to make payments as agreed. Your bankruptcy attorney may be able to explain the process of changing your mind after agreeing to pay a lender under the current terms of a loan.
Can You Sell Assets Held Outside the Bankruptcy Estate?
As long as the deal with your creditor allows you to sell an asset, you generally have the right to do so. This can help you raise funds to keep up with a repayment plan or let you get rid of an asset without losing equity that has accrued. Selling a home may be far preferable to having it foreclosed. Trading or selling a vehicle could also be beneficial in the event that you can’t get the court to agree to a cram down.
Debts Can Be Repaid After a Discharge
Whether you choose to reaffirm a debt or not, it is always possible to pay an outstanding debt in full. This is true even if you had it discharged in a bankruptcy case. Doing so could be helpful in preserving relationships with vendors, friends or family members. It can also be an ideal option for those who feel that they have a moral obligation to repay money that they borrowed from any source.
If you are in need of a bankruptcy attorney, reach out to the legal representatives from Neuner & Ventura LLP. You can contact our law office in Marlton, New Jersey, by calling (856) 596-2828. You can also use the contact form on this site or visit us at our practice at the Willow Ridge Executive Office Park.