REAFFIRMATIONS IN BANKRUPTCY
In bankruptcy, you have some options regarding what you can do with secured debts. A secured debt is a debt you are paying to keep a house, car, four-wheeler etc. You may either reaffirm the debt (keep paying on the debt and keep the secured item), redeem (pay fair market value for the item secured by the debt), or surrender the item and get rid of the debt.
In the reaffirmation process, there is negotiation between the creditor and you about what the terms for the reaffirmation are going to be. Thus, the interest rate or even the principle balance of the loan terms may change, and often they change in your favor. There is no obligation for a creditor to agree to a reaffirmation, however. This means that if the creditor is unreasonable about the reaffirmation terms you may end up surrendering the item or just redeeming it.
A lot of local credit unions consolidate unsecured debt with secured debts for their members. If you have one of these the credit union usually requires you to pay on the entire amount of the debt even though only a portion was secured against your truck or car. In other words, you may end up paying on the reaffirmation some debts you really shouldn’t. If you have ever wondered why credit unions will over secure an item in a consolidation (example: $10,000 car that has a $15,000 loan against the car where $5,000 was from an old credit card) it is because the credit union knows if you file bankruptcy they aren’t going to lose out on the $5,000 if you want to keep your car.
