Reaffirmation and Redemption in Chapter 7 Bankruptcy

Reaffirmation is a signed document filed with the Bankruptcy Court that renews your agreement with a creditor. It is typically executed when you file Chapter 7 and you desire to keep your car, house, or other secured collateral. You generally need to be current on your loan payments with the creditor you are reaffirming with. The payment terms and conditions of the loan generally do not change. If you change your mind about reaffirming a debt, you can rescind the reaffirmation any time before the Court issues a discharge, or within 60 days after the agreement is filed with the Court, whichever is later. 

Occasionally, a better option may be to redeem the property, by making a lump-sum payment equivalent to the property’s total value. For example, occasionally my client will have a car worth $18,000, but they owe $35,000 on it. This typically happens when they trade in a car and role over the negative equity into the new car loan. Chapter 7 Bankruptcy allows my client to pay the car creditor $18,000 all at one time (the value of the car), and the Creditor has to release the title in exchange. This essentially saves my client $17,000! Where does my client get the money to do this you might ask. There are finance companies that specialize in loaning the money to Chapter 7 Debtors, and they become the new lien holder on your car. Typically, these finance companies want the car to be no older than 3 years old, and a solid, stable job for the Debtor is also required.