When you file for bankruptcy you have to decide what things you want to keep, and which things you will return to the lender. It is a common misconception that people are allowed to keep things and not pay for them, just by filing for bankruptcy. The truth is that if you file a case you do have to pay for what you keep, so difficult choices do have to be made. Most people decide to keep their house and their cars. In so doing, an agreement to continue making payments for these items is made. The agreement is usually reduced to a writing, signed by the debtor, and filed into the case. The writing is called a reaffirmation agreement, because the debtor has agreed to reaffirm the debt. Reaffirming a debt means you are agreeing to keep paying for it, even though you don’t have to do so by virtue of having filed bankruptcy. The benefit to reaffirming a debt, as stated, is that you get to keep the collateral. But before you run out and decide to reaffirm certain debts just so you can keep your property, you also need to know some of the down side to signing a reaffirmation agreement.
It is common to reaffirm a secured debt, like a car or house, because these loans are secured by property we use on a daily basis. A reaffirmation agreement in these instances is a good idea because you get to keep living in your house and driving your car. Your lender will also be allowed to talk to you during, or even after the bankruptcy case is over, because a reaffirmed debt is not one that gets discharged and considered no longer due after your bankruptcy case is over. But what about other types of debt, like a credit card? Some of us may think keeping a credit card on hand for an emergency is a good idea, and if reaffirming is the way to keep in your lender’s good graces then reaffirming a credit card might sound smart to you. While you can reaffirm a credit card, here are some reasons it is not advisable:
• The rate may be high, which will mean you are still paying bills you can’t afford to pay.
• Many lenders will reach out to you and make credit card offers not long after your case, so if you feel strongly about the need to have a credit card you can probably get one soon after your case is over.
• Your card may be approaching its limit, so hanging on to it probably won’t provide you the security blanket you are envisioning.
Our advice is to look at your budget, and your needs. Reaffirm only what you need, and then take a look at your budget again after you have eliminated some of your debt. Rather than act fast during your case, give it some time and see how your financial picture looks after your case is over.
If you are considering filing bankruptcy to help eliminate debt, contact us at www.DsouzaLegalGroup.com.