Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.
If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures. Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed (and how it is calculated), and that reaffirmation means that the debtor’s personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement.
If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal effect and consequences of the agreement, including a default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor’s dependants. The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists.
Bankruptcy can’t help you if you hide information. If you fail to list creditors, the debts you owe them may not be wiped out by your bankruptcy discharge. So, be sure to list every person who claims that you owe them money, even if you don’t think you owe them a cent. In this situation, you can indicate that the debt is “disputed.” If the debt is already the subject of a pending lawsuit, the debt can be listed as “contingent,”that is, it depends on how the lawsuit comes out.
When your bankruptcy is finished, you will no longer owe any debts that have been discharged. If a disputed debt is discharged, the entire dispute will be irrelevant. The creditor will be legally barred from collecting anything more from you regardless of who is right.
Some filers consider omitting creditors whom they like, such as a relative or a friendly local business person, to avoid having that debt wiped out. This is a bad idea, no matter how honorable your intentions. Bankruptcy doesn’t allow you to play favorites. In fact, a central purpose of bankruptcy is to make sure that all of your creditors get their fair share of what you have, and that certain obligations (like child support) are not shortchanged. If the bankruptcy trustee learns that you’ve omitted creditors from your list, you’ll have to add them, and it will raise suspicion about other statements on your forms.
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