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:
- 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.
- 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.
This is a good thing to know before applying for bankruptcy which should be a last resort. But knowing you can keep any asset you want will clearly be of help in the long run. Just think of what is the best asset to keep and reaffirm.
Evelyn Guzman
Debt Challenger
That’s great financial information. I find that it’s hard to get solid advice on financial matters anymore, but you seem to provide some of the best.
This is easy to understand and information that I did not know about bk. Thanks for putting this out here to help consumers.