Filing for bankruptcy is a complex and often challenging process, accompanied by legal stipulations that may not always be clear. Understanding the implications and necessary steps after filing can be difficult, underscoring the importance of consulting bankruptcy attorneys to guide you through each stage of the process. In specific situations, you may have the possibility to retain some of your assets. Before proceeding with either Chapter 7 or Chapter 13 bankruptcy, it’s crucial to discuss a reaffirmation agreement with your attorney.
A reaffirmation agreement is essentially a contract wherein you agree to assume an existing debt even after going through bankruptcy. This might raise a question: why would anyone willingly commit to repaying a debt while in the process of filing for bankruptcy? Isn’t the fundamental goal of filing to escape the burden of mounting bills? To comprehend the purpose behind reaffirmation, it’s important to grasp what occurs during bankruptcy. The main objective of filing is to obtain a discharge, which absolves you of personal liability for most debts, making it impossible for creditors to collect money from you. However, there are two categories of creditors: secured and unsecured. A secured creditor holds a lien on your property, such as your car or home. This lien grants them the right to reclaim your property and auction it off if you fail to make payments.
After filing for bankruptcy, you receive a discharge, relieving you of the obligation to pay. However, the lien remains intact, allowing the creditor to sell your property. A reaffirmation agreement is a tool employed by bankruptcy lawyers to help you retain your assets. The agreement permits you to acknowledge your previous debt and is sanctioned by the bankruptcy court. Nonetheless, the court must approve the agreement. Often, they will only do so if the lender offers more favorable terms, such as a reduced interest rate, a balance reduction, or other means to facilitate debt repayment. Therefore, be prepared for additional court proceedings and a special hearing.
Consult with a bankruptcy lawyer to ascertain if this option aligns with your circumstances. It’s important to realize that you’ll still need to find a way to settle this debt. Expecting to retain property without meeting financial obligations is unrealistic. However, this isn’t the sole method to preserve secured property with a lien. For instance, filing for Chapter 13 bankruptcy involves no liquidation, allowing the debtor to retain all their property through a structured payment plan.