Your credit situation changes dramatically when you file for bankruptcy. Your existing lines of credit will freeze. Often, unsecured lines of credit will be eligible for discharge in the bankruptcy. That means you won’t have to pay them back after the court finalized your bankruptcy filing.
However, discharge is only an option for unsecured debts. When you have collateral property attached to a loan, you can’t just discharge it. Instead, you have to make a decision about the loan itself and the collateral property.
What does it mean to reaffirm a loan?
A financed vehicle serves as collateral property for the car loan that you have to pay. When you fall behind, the lender can repossess the vehicle to recover the costs they incurred by financing the purchase.
If you choose to surrender the collateral property in your bankruptcy filing, then the remaining debt may be eligible for discharge. Some people prefer to reaffirm their loans. This involves signing paperwork that will once again hold you responsible for making payments. Reaffirming a vehicle loan allows you to keep your collateral property.
Some people renegotiate their loans
If you file for Chapter 13 bankruptcy, you may be able to work with your lender and slightly change the terms of the loan. You might be able to lower how much your payment is or the interest rate on the account.
Exploring all of your options for your different debts can help you maximize the benefits you derive from filing bankruptcy.