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Reaffirmation of a Debt - Is There Any Time That it Makes Sense?

In chapter 7 Bankruptcy there is a process called reaffirmation. Essentially this means that you reaffirm your compulsion for a debt and it will not be discharged by the bankruptcy. Why would anything do that?

Sometimes credit card associates will try to slide one by the card holder by saying if they reaffirm the debt they will forgive half of it and they will continue to carry the inventory as open (with a smaller minimum payment) after the Bankruptcy. Reaffirming an unsecured debt of any kind surely doesn't make any sense. The purpose of a bankruptcy is to give you a fresh start, not naturally to sacrifice the amount of debt you have.

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Homes and cars are another thing though. If the bulk of your problem debt was credit cards, you may be in a great position to pay for a car now that you are not development payments to credit cards. Unless you live in an area that has excellent communal transportation (where can that be found in the U.S.?) you probably need your car to commute to work. Work obviously is how you originate the earnings to recover. If you are in the unlikely position of having equity in the car, then reaffirmation may work for you.

As a practical matter though, if you just keep development the car payments they aren't going to come and repossess the car. No bank wants to be in the used car business. So you don't have to reaffirm and the inventory will show as discharged by bankruptcy.

Homes are a very emotional issue. Nobody wants to lose a home over a non-payment issue. If however, after determining what your earnings and expenses will be after discharge, you cannot afford the mortgage, taxes and insurance, then you have to give it up. Don't think that you'll be able to find a way to make the cost when the numbers say you can't. If you have a good bankruptcy attorney he won't let you do it.

If you have decent equity in the house and were just unable to sell it, and if you can find a non-bankruptcy someone to partner with you, the judge may reconsider a reaffirmation depending on your partner's ability to accept the liability of your mortgage. This of course would save the house.

Bankruptcy is an emotional time. Don't make decisions with your heart, make them with your head and the guidance of good counsel.

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This post was written by: Franklin Manuel

Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter