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What Does it mean to Reaffirm a Loan after BankruptcyWhat Does it mean to "Reaffirm a Loan" after Bankruptcy

After bankruptcy, some individuals choose to "Reaffirm a Loan" as a means of reestablishing their credit history. This is usually done on Home Loans or Car Loans. A bankruptcy could dissolve those debts, but it would also mean you'd lose your home or car. By re-affirming the loan, you agree to the original terms and simply continue your payments. The lender then reports to the credit bureaus that you are making your payments, and thus your credit history starts its long, slow climb back to normal.

According to most financial experts, it is never a good idea to reaffirm a debt after bankruptcy unless you expect to be able to pay the mortgage and/or car loan. Your bankruptcy is designed to remove blemishes from your credit report and by reaffirming your loan it allows the creditors to continue to come after you. Because loan reaffirmation is a dangerous proposition, you need to get the approval of the court where your bankruptcy took place in order to reaffirm.

Ask yourself if the reaffirmation is a good idea.

Before you move forward with a loan reaffirmation you need to ask yourself why you are doing it in the first place and will you be able to afford the loan after the bankruptcy. If the loan was a bad idea before the bankruptcy, what makes you think it will be easier afterwards? If you cannot answer these questions then you should let the bankruptcy handle the loan and try again with another creditor in the future.

What about a car loan?

Many people worry about their vehicle during their bankruptcy. Will they be able to keep their car? Fortunately, with car loans reaffirmation is not always necessary. Many car companies will allow you to keep your car without reaffirming the loan as long as you continue to make your monthly payments. To be sure, you should talk to your bankruptcy attorney. If the auto loan company wants to reaffirm the loan, however, your auto loan is a debt you should consider reaffirming.

Why creditors want you to reaffirm

The fact is, when you file for bankruptcy your creditors will lose out in one way or another. This is why creditors will contact you to reaffirm your debts before and during the bankruptcy process. If you do this, the debt will not be included in the bankruptcy process and you will still be required to pay it after the process is complete.

In short, unless it is a car loan or mortgage and the lender requires reaffirmation it is never a good idea to reaffirm any loans during bankruptcy proceedings. If your creditors are contacting you to reaffirm, let your bankruptcy attorney know and they will stop the lenders from contacting you.

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