Filing for bankruptcy doesn't mean you have to give up all of your possessions. In fact, in many cases, it is possible for you to keep property like a car even if you still owe money on it. While the bankruptcy process won't allow you to discharge a secured debt and still keep the vehicle, it is possible to hold on to it if you are able to keep up payments after your bankruptcy is completed.
In a Chapter 13 bankruptcy, this is can be accomplished by including the asset in your bankruptcy plan. By doing so, your bankruptcy payments will go to both your ongoing debt as well as the payments you have missed. The end result is that you exit your bankruptcy current on your car payments, hopefully in a position that you can continue making your payments until it is paid off.
Things work a little differently when you file for protection under Chapter 7. A Chapter 7 bankruptcy typically doesn't involve a lot of assets, and there is no bankruptcy plan like with a Chapter 13. Because your bankruptcy will likely discharge long before your car loan is set to be paid off, you will have to work out an arrangement with your creditor if you want to hold on to your car after bankruptcy. This can be done through a process known as debt reaffirmation.
What does it mean to reaffirm a debt?
Reaffirmation of a debt means that you agree that you still owe a debt after your bankruptcy case discharges. This means that the contract creating the original debt, like a promissory note for a car, survives the bankruptcy. Additionally, your creditor's lien on your property will continue after the bankruptcy as well. This means you are still obligated to make your payments, and the holder of your lien can retake your property if you fail to pay. In other words, when it comes to a reaffirmed debt like an auto loan, it will be as if you never filed bankruptcy in the first place.
Reaffirmation: Pros and Cons
The biggest advantage to reaffirming a secured debt is that it gives you an opportunity to keep your property so long as you maintain your payments going forward. In many cases, reaffirmation is the only way you can hold on to secured collateral like a vehicle. The bankruptcy process also gives you a chance to renegotiate with your lender; in some cases, your creditor will make some concessions in order to keep your payments coming in.
There are obvious downsides to reaffirming a debt as well. First and foremost, you are still bound to the debt even after your bankruptcy case discharges. If you default on your loan shortly after your bankruptcy discharges, your fresh start will be disrupted by collection efforts from creditors. And because you have to wait before you file bankruptcy a second time, you will be stuck with this debt for years to come.
Discuss Debt Reaffirmation with a Nevada Bankruptcy Attorney
There are a lot of things to consider when deciding whether or not to reaffirm a secured debt in bankruptcy. If you are planning to file for bankruptcy protection in Nevada, contact Vohwinkel Law today to discuss your situation with an experienced bankruptcy lawyer.