Filing for Chapter 7 bankruptcy in Michigan can be a great way to absolve yourself of overwhelming debt and expenses. Once the bankruptcy is discharged, you can begin a fresh financial start.
Otherwise known as liquidation bankruptcy, Chapter 7 allows you to emerge from loans and payments that you have been locked into for years, according to The United States Department of Justice. However, there may be some loans, such as your mortgage and car loans, that you wish to keep.
What is reaffirmation?
Debt reaffirmation allows you to make an agreement with the financial institution to continue repaying the loan after the bankruptcy is finalized. The agreement is voluntary, as you have the option to terminate the loan altogether.
Loan reaffirmations are often discussed with the trustee during the meeting of creditors. An agreement document is then drafted, signed and filed with bankruptcy court. The trustee will make sure you know the reaffirmation terms and are aware that you must repay the full loan if you choose to reaffirm the debt.
What are the advantages of reaffirmation?
In some cases, financial institutions will revise the terms of the loan with the intent to help you make your payments. It is beneficial for banks to reaffirm loans rather than write them off and lose everything in a bankruptcy. As a result, the bank may lower your interest rate or decrease your monthly payments. In addition, you get to keep your property and will not have it repossessed by the bank.
Keep in mind that debt reaffirmation is not for everyone. It may be more advantageous for you to get out of a bad loan, then move forward to purchase another vehicle or home that is more affordable.
