When you file bankruptcy, the court can wipe out all qualifying debts. However, if you have the court erase a secured debt, such as a car loan, the lender can repossess the item.
To avoid losing your car, for example, you can reaffirm the loan. According to Findlaw, this process will allow you to create a new agreement that bypasses the bankruptcy process and saves your car.
A reaffirmation agreement is simply you committing to continue paying the terms of your loan. It is a promise that you will not discharge the debt in the bankruptcy, and the lender will not take back the car as long as you abide by your loan terms.
You do have the chance to revise your loan terms when reaffirming your debt. In most cases, a lender really does not want the item securing the loan. They want the money. So, they may agree to alter the terms so you can better manage your payments.
You must honor the new agreement you create. If you miss a payment, the lender will likely repossess the vehicle. Plus, the loan default will go on your credit. Your lender may also sue you to recover money lost on the deal. You cannot do anything about this scenario because you cannot file bankruptcy again until a set period of time passes.
If you want to reaffirm a loan, you will need to prepare and sign the papers stating your intent. The court also must approve the agreement. It will consider whether you have the financial ability to repay the loan. If the court thinks you do, then it will approve the reaffirmation agreement. If not, then it could deny it.
Bankruptcy represents an opportunity to start fresh. Reaffirmation may allow you to keep your financed car so you do not have to start completely from scratch.