The purpose of filing Chapter 7 bankruptcy is to discharge debt, which permanently protects the filer from collection activities by creditors. But sometimes debtors may not want to discharge specific debts. I'm not referring to a credit card that offers frequent flyer miles or a bill from a favorite doctor. All unsecured debt, with the exception of student loans, is discharged in a Chapter 7 bankruptcy case, even if the debtor would like to exclude the creditor from the process. However, secured loans such as mortgages and car loans can be waived from the effects of the discharge order through a document called a reaffirmation agreement.
Reaffirmation means that the debtor waives the right to discharge the debt. In return for reaffirming the loan, the debtor gets to keep the collateral. Reaffirmation agreements must be signed by both the debtor and the creditor. They are completely voluntary and a debtor cannot force a creditor to sign a reaffirmation agreement. If a creditor refuses to sign, in most cases they will not take steps to repossess the vehicle or foreclose on the home if the debtor contains to make payments under the original contract. There are other requirements such as paying property taxes so that the lender's lien doesn't become subordinate and maintaining insurance so that the property is adequately protected.
Reaffirmation agreements must be approved by the court. Each agreement is submitted to the bankruptcy court for review before it becomes binding on the parties. The court considers the agreement and determines if the debtor can afford the payments based upon the income and budget filed with the schedules. In most cases the court will not allow the debtor to reaffirm a debt that they clearly cannot afford based upon the information in the schedules. If the court denies the reaffirmation agreement the debt is discharged, but the debtor can usually keep their property by containing to make payments under the original contract.
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