This is the most common choice individuals make when filing for Chapter 7 bankruptcy. If you choose to reaffirm, you must continue making payments on your auto loan and/or mortgage rather than having this debt discharged in bankruptcy. Regarding your agreements with lenders and your monthly payments, nothing changes. The fact that you are seeking protection from creditors under the United States Bankruptcy Law does not preclude your lender from repossessing your property if you fail to make your scheduled payments. Typically, it is not a problem for borrowers, as they have less debt and more disposable income to apply to loan servicing. However, if you believe you will not be able to afford these payments, reaffirmation may not be the best option for you, and you should consider other alternatives.
Restitution of the Property
If you are upside down on your loans, this is a wonderful opportunity to pay less for the property, as redeeming the property allows you to make a lump sum payment equal to the current market value of your property. For instance, if you owe $7,000 on your auto loan and your vehicle is currently worth only $4,500, you may pay your auto lender the current market value of $4,500 and retain the vehicle without making any additional monthly payments. It is a great method to save money, but for many bankrupt individuals, it is difficult to come up with several thousand dollars to pay off their creditors. If you are unable to come up with a necessary sum of money, you may pursue alternative options, such as borrowing from family and friends or contacting vendors who specialize in redemption loans. Although the interest rate on such loans may be quite high, the overall benefit of redemption remains substantial.
Giving Up the Property
If you do not need your home or car, or if you believe you will be unable to afford the monthly payments, you may decide to surrender your property. By surrendering your residence or vehicle, you can eliminate your debt in its entirety. Although this option may not appeal to the majority of creditors, in certain circumstances it is advisable. It may help you get clear of toxic assets with high loan balances and low market value, or simply give you a debt-free start, allowing you to keep all of your income instead of paying a portion to creditors.
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