Tuesday, November 22, 2011

Reaffirmation . . .

Look in the mirror. Smile confidently. Say, "I'm good enough; I'm smart enough, and, doggone it, people like me." (Apologies to Al Franken and Stuart Smalley . . .) OK, that's NOT what I'm talking about when I say "reaffirmation."

A reaffirmation in bankruptcy is a process by which you agree that a secured debt will not be discharged along with the rest of your dischargeable debt. In a typical Chapter 7 bankruptcy, an individual (or a married couple) will receive a discharge of all of their dischargeable debt. Certain debts, such as past-due income taxes, student loans and domestic support obligations cannot be discharged. (Well, under certain circumstances, some past-due income tax debt may be dischargeable, but that's a topic for another post).

Certain secured debts though  may need to be reaffirmed if your intention is to keep the collateral. A secured debt is one which is associated with some piece of property which the lender can repossess if the debt is not paid. Probably the debt that most people might think of is a car loan. You don't pay, they send out the roll-back. A mortgage is also a secured debt. If a secured debt is discharged in bankruptcy, that means that if you stop paying, the lender can still take back their collateral, such as your car, but they cannot pursue you for any deficiency or shortfall they might experience when they resell the collateral.

If you have reaffirmed the debt, however, then the debt survives the bankruptcy as though you had never filed; the lender can not only repossess the collateral, it can go after you for the difference when they sell the thing for less than you owe. This is something you often see with car loans; you have a car and you owe, let's say, $17,000.00, It's a 2009 something-or-other and it's in good shape. But you fall behind on the payments, and the lender sends out the guy with the truck and repossesses the car. They sell it at auction and get $8,000.00 for it. You still owe them $9,000.00. If, however, you have filed a Chapter 7 bankruptcy and have voluntarily surrendered the car, then the entire debt will be discharged. If, on the other hand, you filed the Chapter 7 and you reaffirmed that debt, you are still going to be on the hook for the difference.

There are many instances where reaffirming a debt is not a bad idea, and there are times when it really IS a bad idea. Your bankruptcy attorney will be able to explore all of your options with you and help you to decide what is likely to be your best course of action.