Getting rid of as much debt as possible is undoubtedly the main goal of most bankruptcy filers. In most cases, a chapter bankruptcy can mean that almost all of your debt is forgiven, or discharged. To understand why anyone would want to hang on to some of that debt, you need to understand the two main types of debt and the advantages of what is known as a reaffirmation. Read on and learn more.
Unsecured Debt and Bankruptcy
Many consumers have a load of credit card debt and fortunately, that particular category of debt is unsecured. That means there is no collateral to secure it. When you took out the credit card debt, you did not have to pledge any personal property to do so. Along with credit card debt, personal loans and medical debts are also secured. In almost all instances, all unsecured debt can be fully discharged with a chapter 7 filing.
Secured Debt and Bankruptcy
The other category of debt has property attached to it. Homes with mortgages and vehicles with auto loans are two common forms of secured debt. When it comes to bankruptcy, you can have the debt forgiven but you will lose the property if you do. Homes will be foreclosed upon and vehicles can be repossessed if you are behind on the payments – bankruptcy or no bankruptcy. If you are not behind in your payment, however, you may be able to work things out. The ability to keep property like a home and vehicle depends also on your state's exemptions, which allow filers to reduce the value of an item to avoid it being seized by the bankruptcy trustee. If you can keep the item based on exemptions and you are not behind on the debt, you might want to talk to your bankruptcy lawyer about a reaffirmation of the debt.
What To Know About Reaffirmations
Commonly used for vehicle loans, a reaffirmation allows a consumer to reaffirm their willingness to pay a debt after the bankruptcy is final. A reaffirmation is a promise to pay and it's usually accomplished via a document included in the bankruptcy paperwork. In some cases, the vehicle loan representative will require you to sign paperwork in person at the creditor's meeting. Be sure you understand the impact of a reaffirmation on your budget. If available, reaffirmations allow consumers a chance to avoid losing their vehicle and having to purchase a new one after the bankruptcy when their credit is not so good.
Find out more about vehicle affirmations from your bankruptcy attorney.