Many people going through bankruptcy desire to keep certain items of personal property by reaffirming some portion of their debts. The United States Bankruptcy Code provides a mechanism for debtors going through a Chapter 7 case to keep certain items of property by agreeing the exclude the debt secured by that property from their bankruptcy. Reaffirming a debt means that you sign and file with the bankruptcy court a legally enforceable document, which states that you promise to repay all or a portion of the debt that may otherwise have been discharged in your bankruptcy case.
As a recent Meeting of the Creditors, the case right before mine involved an interesting situation on the reaffirmation of debt. These debtors decided, against the advice of their attorney, to reaffirm on four separate debts secured by personal property that they did not want to give up. The bankruptcy trustee chided these guys for almost a half hour because of their intent to reaffirm on those debts. Eventually, the trustee decided to either recommend that the case convert to a Chapter 13 or that he would move the court to dismiss the case.
That case highlighted to me the importance of choosing wisely when reaffirming debts. Generally, if you can afford it, reaffirming your home mortgage is a reasonable option, so you can stay in your home. Reaffirming a vehicle needed for transportation is also a reasonable decision. However- reaffirming on your home, two vehicles, and your speed boat is likely to raise the alarm of the Court and the trustee assigned to administer your case.
Not only that, but reaffirming debt is usually not always a wise move, say financial experts.
“As a general rule for consumers, the presumption should be that it’s never a good idea to reaffirm debt, particularly in bankruptcy,” says Jack Williams, resident scholar for the American Bankruptcy Institute. This is because reaffirmed debts are excluded from the bankruptcy discharge. If you default on that debt later, you will be obligated to repay it, without any method of relief through bankruptcy. The best way to determine if reaffirming a debt is a wise choice is by consulting with a local bankruptcy attorney.
If you are struggling with crushing debt, call a local bankruptcy attorney to discuss your options. Bankruptcy certainly isn’t for everyone. However- it can be a useful tool in achieving your financial independence.