When you file for bankruptcy, it’s usually because you have too much debt and you want a fresh start. Bankruptcy eliminates debt, but it often means you have to give up some possessions as well, especially those that have a loan on which you’re still paying. However, it is possible to keep some of these items if you’re open to reaffirming the debt after bankruptcy.
Below are some pros and cons to consider before reaffirming a debt. While this list may be helpful, it’s important to discuss your case with an Ohio debt relief attorney before you go through with it. Bankruptcy attorneys have far more experience with reaffirming debt after bankruptcy, and they can give you valuable advice on the matter.
The Pros of Reaffirming a Debt
- You can start rebuilding your credit right away. Your credit takes a hit after a bankruptcy. The best way to rebuild your credit score is to make timely payments on a loan or credit card. Since you will have the reaffirmed loan after your bankruptcy, making your payments on time will help you get your credit back into shape faster.
- You should have an easier time paying. Before bankruptcy, you were most likely stretched so thin that it was impossible to pay all your bills. After your discharge is awarded, however, you should have more money in your pocket. Because many of your debts were either discharged or rolled into an affordable payment plan, you should be able to pay your loan each month.
- You can secure your current interest rate. While the reaffirmation is a new agreement, your loan doesn’t have to come with new terms. Securing the interest rate that you started with is a major bonus. Going through a bankruptcy doesn’t mean that you’re automatically not creditworthy, but it does hinder your immediate chances of getting a loan, particularly one with a reasonable interest rate. Reaffirming a car loan with a lower rate means you don’t have to negotiate with the bank to buy a new car at a higher, post-bankruptcy interest rate.
The Cons of Reaffirming a Debt
- Your possessions could depreciate rapidly. A good example of a depreciating possession is a car. As soon as you drive a car off the lot, it begins to lose value. Your brand new $20,000 car will be worth about $6,000 at an auction in a couple of years. This rapid decline in value is surprising, and if you decide to reaffirm your car loan, you need to be mindful of the car’s value. If, for example, you’re thinking of reaffirming a $10,000 car loan for a car valued at $5,000, you might want to reconsider.
- You could still default. Reaffirming the debt puts you back on the hook for it. This means you cannot go back later and try to amend your bankruptcy discharge. If you default on a reaffirmed debt, your creditor can repossess your item and sue you for the amount you still owe. Often, this scenario is frightening enough to make people decide against debt reaffirmation.
Don’t Make a Decision without Speaking to an Ohio Debt Relief Attorney
Our attorneys at Luftman, Heck & Associates have been advising people on bankruptcy matters for years. If you’re thinking about reaffirming a debt after bankruptcy, you should speak to us first. Each matter is different, and we can walk you through your case and help you determine if a reaffirmation is the right way to go. For a free consultation, contact us at (216) 586-6600 right away.