Understanding Reaffirmations

An important transaction in a Ch.7 filing is the reaffirmation agreement.  These are typically issued for car loans.  Nearly everyone can keep the vehicle they have through a bankruptcy because the lender doesn’t want the car – they want the value of the car loan.

Your car loan (i.e. promissory note) is eliminated when you receive a bankruptcy discharge.  This means that a car loan agreement must be issued and signed after you file your bankruptcy.  Otherwise the lender will repossess the vehicle because your promise to pay is secured by the lender’s ability to recover the vehicle if you default on your payments.

It’s important to keep in mind that reaffirming a car loan removes it from your bankruptcy protection.  This means that if you default after reaffirming your car loan then the lender can hold you liable for the difference between the vehicle’s auction value and the amount you would owe on the loan.

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