The purpose of filing Chapter 7 bankruptcy is to discharge debt. However, discharging debt doesn’t remove liens on secured property, so although your liability for repaying a debt may be discharged, if you don’t continue making payments to secured creditors, they will likely enforce their lien through foreclosure or repossession. Debtors who wish to keep secured property after discharge can choose to reaffirm a debt. Reaffirmation agreements are contracts between the debtor and the creditor setting out the terms of what is owed by the debtor to satisfy the creditor’s claim. These agreements are filed with the Court and require an order from a bankruptcy judge approving the agreement.
Generally creditors offer to reaffirm debts under the original contract terms, but there is no law or rule stating that the terms can’t be renegotiated. Debtors should offer to reaffirm their debt at a lower interest rate or to reduce the balance owed if they are upside down on the loan. For example, if a car is worth $10,000 and the debtor owes $15,000 under the original contract payable at 12% interest a year, they should consider offering to reaffirm the debt for $10,000 at a lower interest rate.
Keep in mind that the creditor doesn’t have to agree to the new terms. They may turn you down or make a counteroffer. Some creditors refuse to renegotiate terms in reaffirmation agreements. But I have found that this is a small minority of creditors. Most creditors will consider the debtor’s offer and weigh it against what they will likely get for the property at auction, and make a smart financial decision.
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