One of the biggest decisions you can make in a Chapter 7 bankruptcy is whether to reaffirm your secure debt. This typically means deciding whether you want to reaffirm your home mortgage or your car payments. If you were to reaffirm your debts in the chapter 7, you will be bound to those debts beyond the ending of the bankruptcy case.
The reason people often reaffirm debts in Chapter 7 bankruptcy is so they can keep the collateral that is associated with the debt. Often times you do not need to reaffirm a debt to keep the collateral. This is most often true with a mortgage, though it is sometimes true with a car. It will depend on your state’s law as well as the creditor involved in the collateral.
The reason it’s important to know whether you reaffirmed the debt or not is because if at any point after the bankruptcy you decide to sell the property, or the creditor tries to collect on a debt because you are missing ongoing payments, it is important to know whether you, in fact, still owe the debt.
If you do not owe the debt, it is because you did not reaffirm the debt. This prevents the creditor from collecting against you personally. The creditor can still repossess the collateral- meaning take back your house or your car if you miss payment; however, the creditor cannot collect on the debt (i.e., they cannot sue you to get a money judgment against you). This is in addition to other advantages in not reaffirming.
If however you did reaffirm the debt, then the creditor can not only take back the collateral, but they can also sue you for a deficiency. Additionally, the missed payments can be reported to the credit bureaus.
That’s why it’s so important to determine while you’re in the bankruptcy whether you really want to reaffirm the debt or not. Reaffirming the debt has serious consequences, so you need to know whether you reaffirmed or not.
Filling out a statement of intention when you filed the case stating that you wanted to reaffirm the debt, does not mean that you actually did reaffirm the debt. The only way to reaffirm a debt is by signing a reaffirmation agreement that is approved by the bankruptcy court while your case is ongoing.
If you are not sure whether you reaffirmed a debt you need to check your case docket with the bankruptcy court. You will then know for certain what you did while your case was active with the debt and whether the debt survived the bankruptcy.