Debt Reaffirmation in Chapter 7 Bankruptcy: Pros and Cons in Clark County

Navigating Chapter 7 bankruptcy in Clark County? Find out about debt reaffirmation, its potential benefits and drawbacks, and why consulting with an experienced bankruptcy attorney can make all the difference.

Filing a Chapter 7 bankruptcy in Clark County can help you deal with overwhelming debt. It can discharge credit card debts, medical bills, payday loans, and other debts that aren’t tied to property. Debt that’s tied to property is treated differently in bankruptcy. In some cases, you may not want to get rid of a debt because it means you would also have to give up the property. For example, if you have a car financed by an auto loan, you may want to keep it despite filing for bankruptcy. That’s where reaffirmation agreements come in.

What a Chapter 7 bankruptcy in Clark County does

Chapter 7 bankruptcy is a common form of asset liquidation available if you can’t make regular monthly payments toward your debts. Chapter 7 provides you relief regardless of the amount of debt owed or whether or not you are solvent. A Chapter 7 Trustee is appointed to convert your assets into cash for distribution among creditors. You get to keep exempt assets and possessions, up to a limit. Once the process is complete, the remainder of your included debts will be discharged. Although it’s often a last resort, understanding how a Chapter 7 bankruptcy might help you could be important if you’re struggling with debt.

What Is Debt Reaffirmation?

Depending on your circumstances, if you want to keep certain secured property (such as a car), you may decide to “reaffirm” the debt. A debt reaffirmation is an agreement between you and your creditor that you’ll remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in bankruptcy. In return, your creditor promises that it will not repossess or take back your car or other property so long as you continue to pay the debt.

If you decide to reaffirm a debt, you must do so before the discharge is entered. You must sign a written reaffirmation agreement with your debtor and file it with the court. The Bankruptcy Code requires that reaffirmation agreements you make with your debtors contain disclosures that explicitly detail the debt amount that you’re reaffirming, how it’s calculated, and that your reaffirmation means that you remain responsible for the debt during the bankruptcy. Your reaffirmation agreement will also require you to sign and file a statement of your current income and expenses, which shows that the balance of income-paying expenses is sufficient to pay your reaffirmed debt. If the balance doesn’t show that you have enough to pay the debt, the bankruptcy court will presume undue hardship and may decide not to approve the reaffirmation agreement.

The Pros of Debt Reaffirmation

  • Debt reaffirmations are voluntary. It’s always your choice whether or not to sign a reaffirmation agreement. Your lender can’t force you to reaffirm the debt you owe them during bankruptcy procedures. This gives you the freedom to decide what works best for you.
  • You get to hold on to secured assets. Bankruptcy doesn’t mean you have to lose access to every asset you have borrowed. If you still need and can still pay for borrowed assets that are critical for your daily life, your affirmation lets you retain them.
  • You can rebuild your credit score. The more debt payments you continue to make, the better your credit score will be. Staying up to date on large assets such as a house or car will go a long way toward rebuilding your credit score after bankruptcy.

The Cons of Debt Reaffirmation

  • Your lender could seize your home or car. Just like before your bankruptcy, if you fail to make payments on secured debt, your lender can repossess the asset that secures the debt. So, if you don’t pay your mortgage that’s part of a reaffirmation agreement, you could lose the home through foreclosure.
  • You could owe the deficiency. Your troubles may not stop at just losing your home or car. If the asset securing the loan is worth less than the loan amount, you could owe your lender the difference between the two amounts. So, if you owe $200,000 and your lender forecloses on your home that’s only worth $175,000, you could owe the lender an additional $25,000.
  • You may reaffirm the wrong debt. By choosing to remain responsible for repaying a specific debt even after the bankruptcy process concludes, you may find yourself in an unfavorable position. For example, you may reaffirm a sizable car loan with the belief that you can manage the monthly payments. But if unexpected medical expenses arise, you may find yourself struggling to pay off a debt you could have discharged.

Pertinent Issues in Debt Reaffirmation

Besides the pros and cons, you should take in other factors in your reaffirmation decision, including:

  • Eligibility. Not everyone qualifies for debt reaffirmation. The bankruptcy court scrutinizes your income and expenses to determine if you can handle your reaffirmed debt. For example, the court may not allow you to reaffirm your home mortgage if your monthly expenses make it too risky.
  • Paperwork. You need to make sure to fill out relevant forms like your Reaffirmation Agreement and Disclosure Statement completely and accurately. Making a mistake can derail the process—which is a good argument for you to hire an experienced bankruptcy attorney as you pursue your reaffirmation.
  • Other options. You may want to weigh other choices besides reaffirmation in your bankruptcy process, including negotiating new terms directly with your creditor.

How an Experienced Bankruptcy Attorney Can Help With Your Debt Reaffirmation in Clark County

Hiring a seasoned bankruptcy lawyer to help with your Chapter 7 debt reaffirmation process can be a critical step in your financial recovery. Before you sign the reaffirmation agreement that your debtor has created for you, your attorney can review it and find potential pitfalls that you want to avoid. They can also help you strategically negotiate terms with your creditor on your behalf. The right bankruptcy attorney doesn’t just know the law—they apply it specifically to your case to get you the most favorable outcome.

Get in Touch With Richard P. Arthur

Richard P. Arthur, Attorney at Law, can help you file for debt reaffirmations during your Chapter 7 bankruptcy in Ohio. You can call 937-254-3738 for a consultation. He has more than three decades of experience helping clients in Dayton and Trotwood, as well as Montgomery, Greene, Miami, Clark, and Warren counties.