How to Repay Secured Loans in a Chapter 7 Bankruptcy Filing
Reaffirming your Obligation to Pay your Secured Loans through Chapter 7 Bankruptcy
When you file Chapter 7 Bankruptcy (debt elimination), you are legally required to have your possessions sold by the bankruptcy court in order to pay off your obligations. In order to keep property that has been obtained through secured loans, such as your home or cars, you must sign a Reaffirmation Agreement. This document reaffirms that you promise to pay on your secured loans and, in essence, means you give up bankruptcy protection. Therefore, by signing a Reaffirmation Agreement, you must make the required payments on your secured loans as these debts cannot be forgiven for a minimum period of six years.
Chapter 7 Bankruptcy – People with A Lot of Unsecured Debt often Choose this Option
Chapter 7 Bankruptcy is usually recommended for individuals who have a large amount of unsecured debt, such as credit cards, and very little in the way or equity or assets. However, if your lawyer feels there is a good likelihood that you may have to relinquish, for example, your home or car, to pay all or a portion of your obligations, he may suggest that you file for Chapter 13 Bankruptcy (reorganization) instead. If the amount of equity in your house or car is higher than the exempt amount permitted by law, then the sale of the assets to pay off your debts is a strong possibility. So, in order to keep paying on secured loans for your home or car, a Reaffirmation Agreement must be signed if you want to keep those possessions.
Debts that Can’t Be Forgiven under Chapter 7 Bankruptcy
In addition to repaying the secured loans for your home and/or car—if that is your choice—you may also be responsible for the payment certain non-exempt debts under Chapter 7 Bankruptcy. These debts cannot be forgiven, even under a Chapter 7 Bankruptcy filing, and include:
–Credit purchases you made before filing Chapter 7 Bankruptcy;
–Most debts incurred under a divorce decree; and
–Cash advances or loans that were acquired just before you filed.
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