During a Chapter 7 bankruptcy, you can discharge most debt and emerge from the pile of overwhelming expenses with a clean financial slate. After listing all your credit card debt, medical expenses and loans, you can essentially wipe them free of your account and begin again. Yet, while filing for a Chapter 7 bankruptcy, you may decide to keep paying on a loan, even after the case is discharged.
Car loans are most commonly reaffirmed during a Chapter 7 bankruptcy, as debtors may wish to keep their vehicles and not lose them to the bank. The financial institution that is in charge of the loan may choose to reaffirm the loan in an attempt to minimize the loss it would experience if you discharge the loan in the bankruptcy. For example, if the car loan is discharged, the financial institution will reclaim the property, but may lose any money tied up in the vehicle. If the bank reaffirms the loan, however, it may still get reimbursed for most of the loan’s amount.
Should you reaffirm your loan? It is important to ensure you can still make the payments on the vehicle without getting in a financial bind. In some cases, the bank will work with you to reduce the monthly payments, making it easier to complete the loan. If you are able to make your monthly loan payments on time, you can help to reestablish your credit with the financial institution.
This information is intended to educate and should not be taken as legal advice.