Macco & Corey P.C.

Reaffirming debt in a Chapter 7 bankruptcy

Reaffirming debt in a Chapter 7 bankruptcy

As some Long Island residents may already know, a Chapter 7 bankruptcy filing can be the financial lifeline they need to climb out from under an insurmountable amount of debt. This is particularly true if the debtor has unsecured debt that is not associated with collateral, such as credit card debt or medical debt, which will be paid off via liquidation. However, what Long Island residents may not know is that even if they go through the Chapter 7 bankruptcy process, they may choose to “reaffirm” a debt if they wish to keep a piece of secured property, for example, a motor vehicle.

Through a reaffirmation, the debtor and creditor agree that the debtor will continue to be liable for the debt owed on the collateral, even if the debt otherwise would have been extinguished through the Chapter 7 bankruptcy process. Then, the creditor agrees that it will not make any efforts to repossess the collateral as long as the debtor makes the necessary payments.

However, if the debtor wants to reaffirm a debt, he or she has to do so prior to the final entering of the bankruptcy discharge. There must be a written affirmation agreement, which is signed by the debtor and filed with the court. In addition, certain disclosures must be made advising the debtor as to certain aspects of the reaffirmation. The debtor also needs to file information about his or her income and expenses, showing that he or she can afford to take on the reaffirmed debt. If not, the court may not approve the debtor’s reaffirmation request.

In the end, deciding whether to reaffirm a debt is an important decision to make, but it also must be made in a timely manner and with the appropriate formalities. Debtors with questions about reaffirmation or about the Chapter 7 bankruptcy process in general may want to seek legal advice.