One of the things that you may be most concerned about when you are considering filing for Chapter 7 bankruptcy is whether you should reaffirm your debts or not. Usually people think like this when they are worried about losing something, like a car or a house, or they want to start rebuilding their credit right away with a reaffirmed loan.
The first thing you should realize is that you WILL need to list all of these debts in your bankruptcy filing even if you want to reaffirm them. Next, you should understand that the vast majority of lawyers are not going to help you with reaffirming a loan in a chapter 7 bankruptcy. Why? The reason is because there is very little good reason to do so. If you are current on your car loan and house loan, all you have to do is keep paying on it and you will be able to keep it. The bank will not be able to take these items unless you stop paying on them.
In order to get a loan reaffirmed you are going to have to absolutely make sure your lawyer goes through the process to get it reaffirmed. Unless you present yourself as extremely intelligent and have a great reason for it, they still probably won’t help you. Sometimes lawyers will even say things like “Sure you can reaffirm loans if you want to” but then they won’t actually follow through. Sometimes lawyers are in a rush and also they know that there really is not much benefit to you to reaffirm. The trustee may also question a reaffirmation, adding another layer to the process.
Here’s Why You Probably Shouldn’t Reaffirm Any Loans
The reasons to not reaffirm are many. For example, if you do not reaffirm a car loan but just keep paying on it after the bankruptcy, you will be able to keep the car and when you pay it off you will get the title. If for some reason you later realize the payments are way too high, or you realize that you are underwater on the loan (owe more than it is worth) all you have to do is stop paying on it and the bank will repossess it eventually and you will not take any credit hit. If you do pay the car off you will get the title and own it and it will be yours. The same is true for the house.
In my bankruptcy I kept both my house and my car. Both loans were discharged in the bankruptcy proceedings. However, I kept paying on both of them and was current on them at the time of filing. I eventually paid off the car and then received the title, so it is 100% mine now. That car remains my daily driver and it was a great choice.
For my house, I kept paying on it for some years and then sold it. I kept all the proceeds. (The house was exempted in my bankruptcy)
In short, be very careful with trying to do a reaffirmation. Usually you just aren’t understanding properly what will happen in your bankruptcy and are too worried about keeping low value cars or houses. Just realize that you can keep these things if you keep your payments current. It’s better to have a 100% clean start in bankruptcy.
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