In Chapter 7 bankruptcy, reaffirming a debt involves making an agreement to repay all or part of a debt that would otherwise be discharged. As a general rule, debt reaffirmation is only possible if the collateral you used to secure the debt is exempt. Otherwise, the creditor may just sell it to get his or her dues. Here are four reasons you may want to reaffirm a debt:
To Renegotiate the Loan
When reaffirming a loan, you have the option of negotiating for new terms. Talk to your lender so that you can come up with a completely new contract. Depending on your lender, you may negotiate for reduced principal balance, lower interest rate or longer repayment period.
This is suitable if you have property you need to keep; for example, a family car that you also use in your business. It may be cheaper and easier than losing the car (to the lender or trustee) and having to buy another one after the bankruptcy.
To Rebuild Credit Faster
The effect of bankruptcy on your credit rating will not last forever. Measures you can take to build your credit include getting secured credit cards and avoiding high-interest, high-fee loans. It will take some time, but it is possible. Fortunately, reaffirmation can hasten the process.
This is because you are no longer liable for your loans after a discharge. In fact, the creditor doesn't have to send your payment histories to the relevant agencies that handle credit rating. However, if you reaffirm your loan, then the creditor will send the reports to the rating agencies. This will help to improve your rating fast.
To Protect the Guarantor
If you have a loan that was co-signed or guaranteed by another person, and you fail to pay the loan, then the lender has the right go after the person. The lender may sell the guarantor's assets to recover the loan. This may not be fair to your co-signor or guarantor, who is likely to be your dear friend. Therefore, it may be best to reaffirm your loan and save your friend the loss.
To Shield the Lender from Financial Loss
You may also choose reaffirmation if you don't want the lender to suffer monetary loss due to your financial mishaps. You may feel this way, for example, if the lender is a close friend or relative. In this case, reaffirming the loan allows you to clear your debt as originally intended.
For legal help with your bankruptcy, contact a lawyer such as Curtis H. Hatfield Attorney At Law.