Brent’s Credit and Debt blog

Well, it is over.  You filed bankruptcy, and met with the trustee, and your bankruptcy case is over.  You now either have a schedule of payments with a Chapter 13, or you wiped most of your debt clean with a Chapter 7.

But there may be a few assets that you decided to keep that you have to re-affirm.  When you re-affirm the debt, you are promising to pay the debt off according to a new payment amount and schedule.  It may be the same as it was, but it may not.

When I re-affirmed my truck, my credit union offered to let me do a ‘cram down’.  I was upside down on my truck, meaning I owed more than it was worth.  The difference was about $4,500.00.  My credit union knew that I was unlikely to want to keep the truck, since it was no longer worth what I owed.

If the credit union had taken the truck back, not only would they have lost the extra money I owed on it, but they also would have lost the money paid to the auction house that sold it, and whatever the lower amount was that it sold for.  My banker told me they were looking at losing about $8700.00 on the truck when all was said and done.

So, they opted for a different route.  By bringing my truck loan down to the current market value, I saved money, they saved money, and they would make a bit back on the interest that I paid.

For me, this was a great deal.  I got to keep the truck, and my payment was reduced.  For my credit union, It was a decent end to a bad situation.

If you are re-affirming a debt, and the debt has a well-define market value, be sure you talk to your lender if you owe more than what your property is worth.  It may be easier to keep your debt than to try to get a replacement for your property.

Make sure you take a hard look before you do this though.  My truck had some problems that I still had to get fixed, and it ended up that I could have gotten a loan for a different car.  It wouldn’t have been as nice, but there would have been no cash out of pocket for the new vehicle, while I had to pay for repairs to my truck.

When you file for bankruptcy, you may choose to keep some of your debts. For most debts, like credit cards, you just keep making payments and your creditor will probably never say a thing.  All debts must be included in your bankruptcy so that your creditors may be notified that you have filed.  This list of creditors will be notified by the courts that you have filed for bankruptcy, and they can choose to close your account or to let you keep it.  Keeping an account may require an affirmation of debt.

It is fairly common for a debt to be missed in the list of creditors provided to the court.  Omitting a creditor intentionally is perjury.  The law allows you to add creditors to a certain point in the proceeding.  If you do not specify a creditor, and the court determines that perjury was committed, they may discharge your case and you may be subject to other penalties as provided by bankruptcy law.  When I worked with my lawyer to put together my list of creditors, I forgot a couple of creditor, such as my utility company and cable television company.  We had to petition the court to add these in later, and I had to pay extra for the filing, so be careful to get everything included.

When I filed for bankruptcy, I decided to keep my truck. That was actually a fairly bad decision, as it needed work and was worth less than I owed on it, but I was worried that I wouldn’t be able to get another car loan.

The truck was listed on the bankruptcy. After the bankruptcy was discharged, I talked to my credit union that held the loan, and told them I wanted to keep the truck. They had me sign a document called a ‘Re-affirmation of Debt’ that allowed me to keep the truck and continue to make payments on it.

This document actually protects the lender. Because the truck was included in the bankruptcy, I could have walked away from it at any time. The bank would have had no recourse but to take the truck as included in the bankruptcy. However, the re-affirmation allowed the bank to be able to repossess the truck if I defaulted on it, and also allowed them to go after collections if I owed money. It is basically a new contract, and as it was signed AFTER the discharge, they hold all the power.

A couple of things to consider if you think you want to re-affirm a debt:

1. If you have a secured loan, consider if whatever you are getting a reaffirmation for is worth the money. You have an opportunity to wipe the slate clean and start fresh. That may be a better option for you.
2. You will be legally obligated for the debt you sign for once you re-affirm. The bankruptcy no longer has any authority over that loan.

You probably can get credit following a bankruptcy, but it is getting much harder to get. You should make sure you re-establish credit quickly with a secured loan or other credit option, and the sooner you start the better off you are.

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

If you are getting calls from debt collectors, you should read my FREE  e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’. This book takes you through a list of things you might be asked by a collector, and how they use information they get against you.  Just click here, or the link above, to get your copy now!