Reaffirmation

What exactly is reaffirmation?  Reaffirmation is the process of telling the Bankruptcy Court that you want to continue the debt obligation to a creditor.  Unsecured debts such as credit cards and unsecured personal loans should never be reaffirmed. 

Secured debts (such as homes and cars) have two components: (1) personal liability and (2) security interest in the physical property.  In Chapter 7 bankruptcy cases, your personal liability to most debts are discharged.  By personal liability, I mean the ability of you being sued in court for the debt.  This means if you reaffirm a debt, you will continue to be personally liable for it after bankruptcy.  Bankruptcy does not release the security interest so that means the creditor can legally repossess or foreclose on the physical property.   However, in an overwhelming majority of the cases, even secured property shouldn’t be reaffirmed because the original terms of the mortgage or auto loan are unfavorable as time progresses.  This could be due to the home being underwater, or if the car has lost essentially most of its value.

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