When you file for bankruptcy, your unsecured debts might be discharged eventually but your secured debts like a mortgage or automobile loan, etc. cannot be discharged. According to lawyers of Dallas based bankruptcy law firm Recovery Law Group, you can either reaffirm the debt, consolidate it or settle it. If you are thinking of reaffirming the debt, you need to work out an agreement with your creditor regarding new terms. The agreement would then be signed by both, the creditor and the debtor. However, before you go ahead with debt reaffirmation, it is important that you know about the pros and cons of the procedure.
Advantages of debt reaffirmation
- If you wish to keep your property, which is not exempted then you need to reaffirm the debt.
- Reaffirmation of your debt makes you aware of not only your payment amount but also your interest rate, etc.
- Reaffirming a debt helps improve credit rating since it shows sincerity on your part when you make regular payments on your debt.
If the item in question for the debt is anything other than car (electronics, furniture, etc.) you can opt for negotiation. The creditor might agree for payment of a lesser amount since if the debt is not reaffirmed, the property in concern will be auctioned which will end up being costlier to the creditor. The creditor might be open to renegotiation of terms than go through the process of auction.
Disadvantages of debt reaffirmation
- With the signing of the reaffirmation agreement, you again become responsible for the debt.
- The reaffirmed debt if not paid in the future would not be discharged through bankruptcy unless you file again (after a specific time period depending on the previously filed bankruptcy chapter).
- Defaulting on reaffirmed debt might result in wage garnishment by the creditor.
In case you are contemplating bankruptcy and there is any debt that you wish to reaffirm, you should consult with experienced bankruptcy lawyers at 888-297-6023 before doing anything.