REAFFIRMATION OF SECURED LOANS

iStock_000012877485XSmallChapter 7 bankruptcy is a great way of getting rid of debt.  Debtors who successfully complete this type of bankruptcy case receive a discharge order which permanently shields them from liability for the debts discharged in their bankruptcy case.  Debts that are discharged in Chapter 7 bankruptcy include credit cards, personal loans, pay day advance loans, medical bills, and many other types of debts.

Even secured debts, such as a mortgages or car loans, can be discharged in Chapter 7 bankruptcy.  However, discharging a secured debt may not mean that you get to keep your house or your car.  The discharge order removes the filer’s personal liability for the debt, but it does not remove the lien on the property.  A lien is the mechanism that attaches a debt to real or personal property.  The basic idea is that if the loan isn’t paid then the property can be repossessed or foreclosed.  The property is then sold and the proceeds of the sale are used to repay some or all of the debt.

Many people that file Chapter 7 bankruptcy want to keep their secured property.  In order to keep the property they have to continue making payments according to the secured loans original contract terms.  The Bankruptcy Code provides a way to except secured debt from discharge.  In order to prevent a secured debt from being discharged the lender and the bankruptcy filer can file a reaffirmation agreement.  A reaffirmation agreement is a form filed with the court that states the contract terms of the obligation and proves that the debtor can afford to make the payments.

The bankruptcy judge will only approve a reaffirmation agreement if the debtor can afford to make payments as described in the agreement or explain how the payments will be made if they cannot pay themselves.  If the debtor cannot show the court that they can afford the payments under the reaffirmation agreement, then a hearing is usually held during which the debtor is given an opportunity to explain why they need to incur the debt and how they intend to pay it.  If the judge believes that the debt will be an undue hardship, then they will not allow the debt to be reaffirmed.  If the judge is satisfied with the debtor’s explanation then the reaffirmation agreement will usually be approved.

For more information on bankruptcy contact The Wright Firm, L.L.P. at 972-353-4600 or visit us on the web at www.thewrightlawyers.com

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