Reaffirming Secured Debts in Bankruptcy

Posted on Apr 29, 2015 By Robert Reese

birmingham bankruptcy lawyer robert reeseWhat does reaffirming a debt mean in the context of a bankruptcy case? It simply means that a person is legally recommitting themselves to a debt. In other words, that person has signed a legally binding document to be liable for a debt that the bankruptcy would have eliminated.  I am often asked the question should someone reaffirm a secured debt. More and more the answer seems to be “No”. Some secured lenders will continue to accept your monthly payments and allow you to keep the property that is securing the loan such as a home or a car. This is known as the keep the property and pay option, which is an informal option not recognized by the Bankruptcy Code, but not specifically forbidden by it either.

Choosing to reaffirm a mortgage or a car may be a safe option, but it creates a personal risk for any remaining balance that may exist if you later default on the loan and the mortgage is foreclosed or car repossessed. Further, there may be no downside if, instead of choosing to reaffirm a mortgage or a car loan, you choose to keep the property and pay. As a result, the best choice may be the keep the property and pay option. This option will:

  1. likely allow you to keep making payments as long as you are not in default;
  2. often keep the lender from starting the foreclosure process or repossessing a car; and
  3. eliminate personal responsibility for a remaining balance from a foreclosure sale or repossession that may result from a default on loan payments after the bankruptcy case is closed.

At Bond and Botes, we always offer a free initial consultation with an attorney to discuss both Ch.7 straight bankruptcy and Ch. 13 Debt consolidation. Do not procrastinate if you are having problems with your debt. Call our offices and have our receptionist set you up a convenient time and day to meet with one of our experienced attorneys.