One of the biggest fears people have when considering bankruptcy is that they’ll lose their property. What happens to your car or home depends on several aspects of your case, including which chapter you’re filing. Many people choose a Chapter 13 and include their home and car payments in their repayment plan. This keeps the property safe. If you choose a Chapter 7, you’ll need to keep your property insured and stay current with payments. You may also be asked or required to sign a reaffirmation agreement, which tells your creditor that you agree to stay up to date on payments. If you don’t, your property could be repossessed. If you’re faced with this situation, I’m here to help.
To Sign or Not to Sign…
When you sign a reaffirmation agreement, you’ll often need to also provide a budget showing you’re able to keep up with your payments. The court will review these documents and determine if your debt payments are reasonable for your income and budget. If they believe your budget is unrealistic, they could reject the reaffirmation agreement. At this point, you would need to either surrender your property or propose a way of buying it back.
A reaffirmation agreement almost looks like a brand new loan on your credit report; when you make timely payments, this shows on your report and improves your credit score. This new agreement may also allow you to negotiate better terms for your loans, such as a lower payment or interest rate. Signing this agreement does have some negative consequences as well. If you begin to miss payments, your creditor could not only repossess your property but could also sue you for any balance remaining after the value of the item is subtracted. If your creditor requires you to sign this agreement, I’ll work with you so you know what to expect.
Your creditor may give you a choice to sign or not, and for many people, skipping the reaffirmation agreement is the best way to go. You will, of course, need to stay current on your payments or face repossession, but your creditor may not sue you for any outstanding balance. However, any payments you make are not reported to the credit reporting agencies, so this does nothing to rebuild your credit or improve your credit score. This may be a worthwhile sacrifice, knowing you won’t need to worry about being sued. Part of your post-bankruptcy credit counseling will include tips for rebuilding your credit in other ways.
Time to Take Control
Don’t let the fear of losing your property keep you from taking advantage of the many benefits that bankruptcy can provide. By using exemptions, we can protect most, if not all, of your property. And you really can’t put a value on the stress relief that comes with knowing your overwhelming debt is behind you. If you’re ready to investigate ways of dealing with your debt, give me a call, and we’ll make a plan.