If you are struggling with overwhelming debt, you are certainly not alone. Millions of Americans feel buried beneath a pile of medical expenses, credit card debt, mortgages and loans they cannot afford to pay.
Chapter 7 bankruptcy offers a way out of that situation. Otherwise referred to as liquidation bankruptcy, Chapter 7 erases certain types of debt and allows you a fresh start. Yet, even as you write off loans that you do not wish to continue, there may be items that you want to keep, such as your car and/or your home.
What is loan reaffirmation?
In some cases, you are able to make an arrangement with the bank to reaffirm a loan that you had previous to filing for bankruptcy. For example, rather than losing your vehicle, you can resign a loan agreement to continue paying on the loan for your car. Before you agree to continue payments on your loan, you want to make sure that doing so will not cause you further financial distress.
Keep in mind that you do not have to reaffirm a loan. It is completely voluntary but can be helpful if you want to keep property.
What are the benefits of reaffirming a loan?
Financial institutions do not want to lose money on the loan through a bankruptcy, so many may be willing to work with you. According to the CIty Bar Justice Center, benefits of reaffirming your loan include the following:
- Negotiating a lower interest rate
- Making lower monthly payments
- Keeping your property
You do not want to reaffirm property that you could replace at a cheaper price. Furthermore, if you are behind on payments, you want to make sure you can catch up on missed payments before continuing to pay on the property.