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What is debt reaffirmation?

Find out about debt reaffirmation and how it might affect you if you file bankruptcy. Learn how it may apply if you are concerned about losing property.

When someone files bankruptcy, Utah allows that person to exempt certain property. However, if someone has property that he or she does not fully own that is secured by a debt, the person may use a process called debt reaffirmation to help keep that property. This is an important concept to understand because it can help individuals to keep important assets instead of having them taken by the court.

The process of reaffirming a debt

According to the United States Court, secured property, depending on what it is and the circumstance of the debt, may be kept during a bankruptcy if the debt is reaffirmed. This means the debt needs to be redefined between the debtor and the creditor to set new terms and an agreement to pay the debt despite the bankruptcy filing.

This agreement makes the creditor liable for the debt and allows him or her to keep the asset as long as it is paid per the agreement. The creditor cannot take back the asset as long as the payment arrangement is kept current.

Reaffirming a debt must occur before the discharge of the bankruptcy case. The agreement must be filed with the court. The debtor must provide proof to the court that he or she can make payments on the debt going forward.

Reasons reaffirmation is used

According to the United States Bankruptcy Court, what generally happens in a bankruptcy is all assets that are not exempt under the law are seized to be used to repay the debts of the person filing the case. Secured debts, such as a vehicle, are often seized because they are not fully owned by the person. Reaffirmation of a debt allows the debtor to keep such property while also giving some assurance to the creditor and the court that the debtor will not fall back into old patterns or be unable to pay off the debt as agreed.

This process can enable a person to keep essential assets and sets up a path to rebuilding credit after the bankruptcy has been discharged. It is not a mandatory process. If the person chooses not to reaffirm the debt, then it will be handled according to bankruptcy laws.

Choosing to reaffirm a debt is a big step. It requires having some financial security after the bankruptcy. It can also be complicated if the case is not being handled by an attorney. Debtors are highly advised to seek the help of an attorney, such as Roger A. Kraft, when filing bankruptcy, especially when they want to reaffirm debts.