Bankruptcy Terminology: What is Reaffirmation?

 Posted on November 29, 2013 in Bankruptcy

Filing for bankruptcy is a difficult decision. However, bankruptcy is an important tool that gives people a second chance despite the curve balls that life may throw. Indeed, the reason behind the United States Bankruptcy Code is an acknowledgment of the reality that life sometimes just happens.

It is unfortunate that bankruptcy has such a negative stigma. Bankruptcy is an invaluable tool, and if used properly, it allows persons to shed off undesired liabilities while retaining useful assets; just ask Donald Trump.

With proper planning, bankruptcy can even allow a person to continue inhabiting the same home or drive the same car while getting rid of undesired debt. This is all thanks to the concept of reaffirmation. Reaffirmation allows bankruptcy filers to choose to remain liable for the debt that encumbers certain assets, thus keeping those assets.

For example, assume that a person who decides to file for bankruptcy wants to keep a car that they have financed; this may be the vehicle used to make a living or to drive children to school. Under bankruptcy rules, if a person does not reaffirm the debt associated with the car, the bank that financed the purchase would repossess the vehicle and dispose of it as they see fit.

However, a person may reaffirm the debt through a reaffirmation agreement, which allows the debtor to keep the property by continuing to remain liable for the debt despite the bankruptcy. In other words, the bankruptcy filer is promising to continue making the payments on the loan as though the bankruptcy did not happen.

Reaffirmation is a serious matter, however, and people must make certain it is the right thing to do. For example, if the car is worth substantially less than what one owes to the bank, it would make little sense to reaffirm the debt.

While it is true that bankruptcy is a difficult decision, an experienced Texas bankruptcy attorney can ensure that one leverages it to get a fresh start.