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Reaffirming a debt in Chapter 7 bankruptcy

In previous posts here, we have detailed how Chapter 7 bankruptcy is commonly known as "liquidation" bankruptcy - a process by which a debtor files a list of assets and debts with the bankruptcy court, and then the bankruptcy trustee sells off the assets in order to satisfy as much outstanding debt as possible. Other posts have covered the difference between secured and unsecured debt as well - secured debt being those debts that are tied to a possession, like a car loan, and unsecured debt most commonly represented by credit card debt. However, what some of our readers may have never learned about is the fact that some secured debts can be "reaffirmed" by the debtor in a personal bankruptcy.

What does it mean to "reaffirm" a debt? Well, essentially it is an agreement between a debtor and a creditor for the debtor to retain ownership of some item of property that is tied to a secured debt, usually an automobile. So, if the debtor wants to keep the vehicle, despite the fact that it might otherwise be seized in the bankruptcy process, the debtor and creditor might come to an agreement that allows the debtor to keep the vehicle and agree to pay most or all of the outstanding debt.

However, reaffirmation agreements may be heavily scrutinized by the parties involved in the bankruptcy filing, for several reasons. First, the whole point of filing for bankruptcy is to leave the filer in a better financial position by discharging overly burdensome debt. Keeping debt doesn't really further that end in some cases. And, filers may not be in the best position to make the decision that their current income justifies the ability to keep paying the reaffirmed loan.

From the wide variety of topics our posts here cover on a regular basis, our readers can probably tell that filing for bankruptcy can sometimes be complicated. Getting the right information about the process can make a big difference.

Source:, "Chapter 7 - Bankruptcy Basics," Accessed Dec. 10, 2016

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