People in Florida who find themselves in heavy debt they cannot pay often consider filing for Chapter 7 bankruptcy. Chapter 7 is a liquidation bankruptcy where they can clear unsecured debt and retain certain properties provided that are below a certain value.
In many cases, people do not need to surrender any property at all. They complete the process and their debts are cleared in a reasonably short time-frame. For others, it is more complicated.
Unsecured debt like credit cards can be cleared immediately. However, there might be secured properties that they want to retain. This is when a reaffirmation agreement could be a viable alternative.
Understanding a reaffirmation agreement
A reaffirmation agreement is used so the debtor can keep a property like an automobile, household items and anything else that was financed. They get to keep it and agree to continue paying for it despite other debts being cleared.
The debtor will remain personally liable for the debt and runs the risk of it being repossessed if they do not stay current with the payments. It might be wise to analyze whether the item is truly necessary and if they can keep up with the payments after the bankruptcy filing is complete.
With the reaffirmation agreement, the creditor will not proceed with a repossession if the payments are made on time and in full. It is important to note that the decision to reaffirm must be made before the discharge.
The court will scrutinize the debtor’s finances to determine if they will have the means to make the payments on the property as part of the reaffirmation agreement. That means they will look at the income and expenses. If the person is deemed unable to make the payments without facing undue hardship, the court might reject the reaffirmation agreement.
Debtors should know the positives and negatives of reaffirming a debt
In general, debtors are advised to only sign the reaffirmation agreement if they truly need the property and can keep up with the payments. For example, if they have a newer automobile that would not be exempt and they need it for work, then this could be a property that is worthwhile to reaffirm.
As with any aspect of bankruptcy, there is nuance that could be confusing. People overwhelmed by debt who are considering Chapter 7 bankruptcy should be cognizant of every option, including whether to reaffirm a debt. This is essential to achieve the desired result of getting in a better financial situation.
