Should I Reaffirm Secured Debt in a Chapter 7 Bankruptcy Case?

If you are planning to file for Chapter 7 bankruptcy, it is important to understand that this is a liquidation bankruptcy. Accordingly, all of your non-exempt property will be liquidated in order to repay creditors, and you will receive a discharge of all eligible debts at the end of the bankruptcy process. The time from filing to discharge usually takes approximately four to six months, making the Chapter 7 bankruptcy process quite fast, especially in comparison with Chapter 13 bankruptcy, which requires a repayment plan over the course of three to five years. While many debtors want to file for Chapter 7 bankruptcy in order to get a fresh start, there are some situations in which a debtor might not want to give up secured property or receive a discharge because the debtor wants to keep that property and continue to make payments on it.

Is this type of arrangement possible in a Chapter 7 bankruptcy case? For example, if you have an auto loan and want to keep the car and continue to make payments to the lender after you receive a discharge in your Chapter 7 bankruptcy, will the bankruptcy court allow you to do this? The process of reaffirmation can allow you to retain certain assets secured by collateral in a Chapter 7 bankruptcy case. What will you need in order to enter into a reaffirmation agreement?

You Must be Current on Your Loan

First, in order to enter into a reaffirmation agreement, you must be current on the loan. For example, if you want to enter into a reaffirmation agreement with an auto lender so that you can keep your vehicle and continue to make payments on it after your bankruptcy discharge, you must be current on your auto loan.

Equity in the Asset Must be Exempt

Any of the equity you have in the asset for which you want to enter into an affirmation agreement must be exempt. If you are thinking about a reaffirmation agreement for a car, for example, you should know that Illinois has a motor vehicle exemption that allows you to protect up to $2,400 of equity in a motor vehicle. If you have equity in the asset beyond the exemption amount, and you cannot use a wildcard exemption, the bankruptcy trustee will liquidate the non-exempt equity in the asset.

Bankruptcy Court Will Need to Approve the Reaffirmation Agreement

The court will need to approve the reaffirmation agreement after considering your financial circumstances and the likelihood of your ability to continue paying the loan after your bankruptcy case is closed.

You Believe You Can Remain Current on the Loan

Finally, you should only enter into a reaffirmation agreement if you believe you can remain current on the loan after your bankruptcy discharge, and if you want to do so.

Contact an Experienced Oak Park Bankruptcy Lawyers

If you have any questions about reaffirmation agreements in Chapter 7 bankruptcy cases, one of our experienced Oak Park bankruptcy attorneys can speak with you today. Our firm can assist you throughout your Chapter 7 bankruptcy case, and we can discuss the benefits and advantages of reaffirmation agreements with you. Contact the Emerson Law Firm to learn more about how we can help with your personal bankruptcy case.


See Related Blog Posts:

Things to Know ABout Consumer Bankruptcy in the New Year

What are the Differences Between Debt Settlement and Bankruptcy?

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