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Alternatives to reaffirmation of debt

A previous post on this blog talked about when a Bradley County, Tennessee, family might consider signing a reaffirmation agreement, which, as that post discussed, means that the reaffirmed debt is not affected by the bankruptcy.

Some people may balk at signing these sorts of agreements, however, especially since they mean that a creditor or their debt collector will have full legal power to take collection actions on that debt, including issuing garnishments and freezing one's bank account, for many years.

There are several options one can consider in addition to reaffirming a debt. For instance, generally speaking, a debtor may consider reaffirming a debt unless it is secured by collateral, like one's house or car. However, one could decide that it would be better just to give up the house or car rather than commit to repaying a debt.

Another option a person can consider is "redeeming" the collateral for fair market value. What this means is that a debtor can pay what the collateral is worth as of the day the debtor filed for bankruptcy, which is often quite a bit less than what the debtor actually owes. If the debtor pays this "redemption" price, he or she keeps the collateral and still gets out of the debt via the bankruptcy discharge. This option is not available in all cases, so it is important to discuss it with an experienced bankruptcy attorney.

Finally, sometimes a debtor can elect to simply do nothing at all and not specify their intentions on their Chapter 7 bankruptcy paperwork. While sometimes creditors will insist that a debtor make his or her intentions clear, if they do not, then the debtor simply keeps making car or house payments without reaffirming the debt.

This means that if they should get behind in payment down the road, they may lose the car and house, but they will not be forced to repay the underlying debt.

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