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What is debt reaffirmation?

A Chapter 7 bankruptcy proceeding can be a complicated matter, and each case must be handled with care and precision. In some cases, a debtor may choose to work out a specific deal with a secured creditor that allows him or her to keep a certain piece of property. This process is known as debt reaffirmation and must be undertaken very carefully.

The issue arises because some secured creditors, or creditors who assume collateral to protect their loan, can still seize property even if a court grants a debtor a discharge. In these cases, a debtor may be able to keep a creditor from seizing the asset by working out a reaffirmation deal with them. Under such a deal, the debtor would agree to continue to be liable for a debt, or a portion of a debt, and make payments toward the original debt. In return, the secured creditor agrees to not seize the underlying asset. Such a deal is typical of assets like vehicles or homes.

It is important to note that reaffirmation may not be the best choice in every instance. A debtor who chooses to reaffirm a debt is made liable for the debt again, and must do so prior to the discharge. It is also important to negotiate a reaffirmation plan that can be kept on the part of debtor — the last thing that you want is to re-sink your ship after undergoing the difficulties of a bankruptcy. An experienced attorney can help you evaluate the variables in a particular situation and advise you as to whether a reaffirmation deal is the best course of action in your particular case.

No matter what your bankruptcy situation may be, it is yours and no one else's. What might work for one person is not guaranteed to be a good fit for you, and vice versa. If you are considering a Chapter 7 bankruptcy, be sure to enlist the guidance of an experienced attorney who can help you craft the best plan for your circumstances and make sure that your rights remain protected.

Source: Findlaw, "Chapter 7: Debt Discharge," accessed Feb. 24, 2017

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