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Should you reaffirm your debt during bankruptcy?

If you are struggling with overwhelming debt, you may consider filing for Chapter 7 bankruptcy as a way to gain financial freedom. Also known as liquidation bankruptcy, Chapter 7 allows you to discharge much of your unsecured debt, including credit card debt, mortgages, medical expenses and loans.  

Creditors may choose to reclaim any secured debt you still owe on as a form of partial repayment, including property that you are making payments on. This often occurs with automobile loans or mortgage payments on a house. There are options, however, if you wish to retain certain pieces of property. 

What is debt reaffirmation?

If you choose to keep property, you may be able to reaffirm the loan with the lender, according to the City Bar Justice Center. This happens when you sign a contract to maintain the terms of the loan, even after the bankruptcy has been discharged. You continue making payments on your property as if the bankruptcy never happened.  

Is a loan reaffirmation the right choice for you?

Once you sign an affirmation, you are contractually bound to pay the remainder of the loan, so it is critical to ensure you are financially able to continue making payments. If you are unsure, you may want to discharge the loan and release yourself of the financial obligation. Consider whether the property is something you want or need.  

In many cases, the financial institution will adjust the terms of the loan to make it easier for you to maintain payments. They may adjust interest rates, lower monthly payments or even shorten the term of the loan. When you reaffirm your loan, it helps out the lender as well and they may choose to pass this savings on to you. 


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