While bankruptcy does provide consumers with the ability to make a fresh start, it has its negatives as well. In most cases, the potential for a loss of property keeps some people from making the bankruptcy move. It's best to know and understand the possible risks of a chapter 7 filing so that you can make an informed decision. For example, did you know that you may be able to keep your vehicle out of the bankruptcy trustee's hands if you perform a reaffirmation? Read on to learn more.
Secured and Non-Secured Debts
To fully understand how a reaffirmation works, you need to understand how bankruptcy views your debts. Consumer debt is split up into two categories: secured and non-secured. Secured debts are those that are connected to a piece of property. Common secured debts are home mortgages and auto loans which are secured by the house and the vehicle. Non-secured debts, on the other hand, are not attached to any property at all. Credit cards are the most common non-secured debt. When you fail to make your credit card minimum payments, you won't lose the items you charged on your card. However, if you don't act quickly and file for bankruptcy, the creditor may take you to court and get a judgment for what you owe. That opens up the potential for property liens and wage garnishment activity.
Another related issue worth mentioning is exemptions. Exemptions are offered to help filers keep some of their property safe from seizure. Property seizures happen when the bankruptcy trustee deems an item you own, like a car, more valuable than the exemption. Here's an example: Your car is valued at $20,000 but you still owe $18,000 on it. It's value to the bankruptcy trustee is $2,000. If your automobile exemption is at least $2,000, your vehicle is safe from seizure. If your numbers don't quite add up that way, however, a reaffirmation might be for you.
Reaffirming a Car Loan
If your exemption is not enough to allow you to keep your car, a reaffirmation of the loan may be right for you. A reaffirmation means that you make a pledge to continue making payments as usual regardless of the bankruptcy filing. These agreements are not always available. For example, if your vehicle is highly valued and nearly paid off, it might hold more interest for the trust to seize it, sell it, and pay off some of your debts. A reaffirmation is not a given and you must be current on your payments. Once you sign an agreement, the car is safe from seizure as long as you continue to pay it off. Once paid off, it's yours to do with as you wish.
To find out more about chapter 7 bankruptcy filing assistance, speak to your bankruptcy attorney.