Reaffirming a debt can help you manage your financial situation, but it’s not a fix-all. In some cases, it can lead to a great deal of stress and make a bad situation worse.
How do you know reaffirming a debt is the right option?
There are a few things to consider.
First, it’s important to understand that reaffirming a debt means you will still be obligated to pay it. If you’re hoping all of your debt will be eliminated in Chapter 7 bankruptcy, reaffirming is not the way to go because you’ll be re-obligating yourself to the debt.
However, if you’re hoping to maintain ownership of property, such as your vehicle or your home, reaffirming the debt you owe can help you a great deal.
Are You Eligible to Reaffirm the Debt?
Next, you’ll need to determine if it’s even possible to reaffirm the debt.
Before you get excited over the prospect of reaffirming a debt and getting to keep the property associated with it, it’s important to make sure you are eligible to sign a reaffirmation agreement.
There are several factors that make a debt eligible for reaffirmation:
The debt must be current, which means you need to bring your payments up to date. There might be some wiggle room with creditors to arrange this, but don’t assume this will be the case. If you want to reaffirm a debt, you should assume you’ll need to come up with the cash to bring it current.
You’ll need to be able to keep the debt current once it’s reaffirmed. The bankruptcy court will need proof of income and will need to see that meeting your payment obligations on the debt is possible.
You can’t reaffirm the debt and still include it as part of your bankruptcy if you’re filing for Chapter 7. It might seem obvious, but it’s important to understand that reaffirming means you’ll be paying the debt, not getting it discharged in your bankruptcy.
It’s also important to realize that reaffirming the debt is a legal obligation to pay and the creditor will have the power to take legal action against you if you fail to do so. Your bankruptcy will not protect you against legal action when it comes to a reaffirmed debt. If you are concerned you’ll fall behind on payments, you’re better off going another route.
In addition to keeping the property linked to the debt, there are additional benefits to reaffirming it.
For instance, signing a reaffirmation agreement improves your credit. Every payment you make toward the debt has a positive impact on your credit score because the credit reports the payments to the credit bureau.
Reaffirming a debt also establishes a relationship with the lender and can help you in the future if you need to refinance. It doesn’t automatically guarantee success, but it can make the process a little bit easier.
Keep in mind, reaffirming a debt isn’t the only way to maintain ownership of property. You and your bankruptcy attorney can review your situation and determine the best steps to take based on your circumstances.
For more information or to speak to someone about whether you should reaffirm a debt, contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA).
