Step One -- Can you afford your car?
You may want to reaffirm a secured debt if the creditor offers you better terms or you want to keep the property and you believe you will be able to make the payments. You should only reaffirm a debt if you can afford to pay it without creating an undue hardship for you and your family. It may be helpful to look at your Schedules I & J and think about how you will be able to make the payments and meet your other obligations as well.
Step Two -- Do you need the vehicle?
It may be that your vehicle was a great fit for your finances and lifestyle when you purchased it, but now the payments have become burdensome. If your vehicle is worth much less than you owe, you may also be able to go out and buy a replacement at a much lower cost. You may also be able to make alternative arrangements such as borrowing a vehicle from a friend or relative, buying a less expensive vehicle for cash, or taking public transportation. Sometimes people think that they will have to reaffirm because they will not be able to get a new loan anytime soon after bankruptcy. This may be true in some cases, but you should fully investigate your options before making the decision to reaffirm.
Step Three -- Are any of the alternatives a better option for you?
There are alternatives to reaffirmation. Please refer to my previous legal guide (linked below) regarding these alternatives. A reaffirmation is more certain than "ride-through" and the creditor will continue to report your on-time payments to the credit reporting agencies and allow you to use automatic payments and online account access. However, you will be liable for that debt even though it could have been discharged.
Making the Decision
The decision to reaffirm is a personal one that you must make. Your attorney can provide you with advice on the various options, but you will need to make the final decision on which option is the best fit for you and your family.
Please note that although this legal guide may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Providing this legal guide does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.