The Three R's - Redemption, Reaffirmation, Ride Throughs

Many individuals are discouraged from filing bankruptcy because of the possibility of losing a home or a car. The thought of giving up a home you grew up in, or a family heirloom can be quite devastating. Exemptions can vary depending your case and jurisdiction, as well as the bankruptcy code under which you file. Exemptions can protect such assets up to a certain value. However, there are provisions in bankruptcy laws other than exemptions that may allow you to keep assets that you owe money on. These options are commonly known as a reaffirmation, redemption and “the ride-through.

Reaffirmation

A reaffirmation agreement is only an option under a Chapter 7 bankruptcy. When you file for a Chapter 7 bankruptcy, you are requesting that the Court eliminate all of your qualified debt and grant you a fresh start. A reaffirmation is an agreement between a debtor and a creditor to remain obligated to pay off a debt, typically under the original terms of the loan because the debt would normally be discharged during a Chapter 7 bankruptcy filing.

Bankruptcy law is very specific in the criteria that one has to meet in order for a reaffirmation agreement to be granted. It requires a detailed disclosure to be completed by the debtor. If you have an attorney, the Court will request the attorney to sign an affidavit confirming that:

• The reaffirmation agreement will not impose any hardship on the debtor and the debtor’s dependents;

• The debtor has been fully advised by his or her bankruptcy attorney pertaining to legal effect, consequences and default of the agreement; and

• The reaffirmation agreement represents a voluntary and fully informed agreement by the debtor.

If the attorney believes that the reaffirmation agreement is not in your best interest, he or she may not sign it. It is important to note that if your attorney does not sign the reaffirmation agreement, the Court might not approve it.

One of the reasons why such significant consideration is exercised when approving a reaffirmation agreement is that if you are unable to keep up with the terms of the agreement, it will result in severe hardship for you. Not only will you be liable for paying the deficiency on your debt, you will also be liable for auction costs and attorneys fees. Since a Chapter 7 bankruptcy is only for moderate to low-income filers, failure to keep up with your payments will create additional financial problems. On the other hand, if you are able to make complete and timely payments on your reaffirmation agreement, it can reflect positively on your credit score. Most judges disfavor reaffirmations because they can be harmful to debtors.

Redemption

When you file for a Chapter 7 bankruptcy, another option through which you may keep certain assets is called redemption. You can redeem secured property by purchasing the asset back from the creditor for the market value, usually paying upfront. You may only redeem your property if you meet the following requirements:

• The debt you are trying to redeem is a consumer debt, which is incurred “primarily for a personal, family, or house-hold purpose;”

• The property being redeemed is tangible personal property, meaning you can touch and see it; and

• The property is either abandoned by the Trustee or claimed as exempt.

Redemption is a great tool to use if you owe substantially more than what the property is actually worth. One of the disadvantages of redemption is that often times you will require the full lump sum value of the property upfront. However, there are lenders that are often willing to extend a loan to you to purchase the vehicle on your behalf and offer you better terms for repayment. Your attorney can file the paperwork with the Court to get this done if you qualify.

"Ride Through"

If neither a reaffirmation nor redemption is a possibility, in many jurisdictions you may qualify for what is commonly called “the ride through.” Despite the fact that the law authorizing it is no longer in effect, if you are able to stay current on your payments, you may be able to discharge the loan and still keep your asset. “The ride through” process can be complicated. As such, it is recommended to speak to an attorney for further information.

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