Most people in Eastern Tennessee think of bankruptcy as a method of discharging their obligation to pay back certain debts. Many people resist the idea of filing a bankruptcy petition because they are afraid that they will lose valuable possessions, most significantly, the family home. While understandable, this fear overlooks an important feature of the bankruptcy code: debt reaffirmation.
In a Chapter 7 bankruptcy proceeding, the debtor must allow the trustee to take possession of all property that is not covered by a bankruptcy exemption. The property is then sold, and the proceeds are paid to creditors. Whatever balances that remain due on these debts are then discharged by an order of the court. An important exception to this procedure is the reaffirmation of a debt that is secured by a lien on the debtor's property. The most common examples are the family home and automobiles. The debtor can retain possession of such assets by entering into a reaffirmation agreement with the lender.
In a reaffirmation agreement, the debtor agrees to repay the debt over time, perhaps on more lenient terms than the original loan agreement. In order to reaffirm a debt, the debtor must file a reaffirmation agreement in the bankruptcy court before the final order of discharge is issued. The debtor must declare that their current income and expenses will allow enough cash to meet the terms of the reaffirmed debt. If the debtor was represented by an attorney in the bankruptcy proceeding, the attorney must certify that the debtor was fully informed of the terms of the agreement and that the debtor signed the agreement willingly and with full knowledge of its terms.
Anyone considering a bankruptcy petition and wanting to retain possession of a significant asset may wish to consult an experienced bankruptcy attorney about the mechanics of debt reaffirmation.