Can I Call a Creditor to Work Out a Deal While in Bankruptcy?

by Elizabeth Stock

Generally, after you file for bankruptcy, the automatic stay prevents your creditors from contacting you directly. However, if there are certain debts that you would like to keep after the bankruptcy case, it may be necessary to contact your creditors about reaffirming a debt. Reaffirming a debt excludes the debt from a bankruptcy case. There are advantages and disadvantages to reaffirmation.

Overview

Chapter 7 bankruptcy is a liquidation proceeding; the bankruptcy trustee seizes your non-exempt property and sells the property to raise money to repay your creditors. In contrast, in a Chapter 13 bankruptcy, you make monthly payments to a bankruptcy trustee who then applies the payments to a repayment plan. At the successful completion of your bankruptcy case, you will receive a bankruptcy discharge of the debts included in your bankruptcy case. A discharge means that the debt is no longer legally enforceable. However, if you choose to reaffirm a debt, you waive the ability to discharge the debt in your bankruptcy case.

Reaffirming Debt

According to the Bankruptcy Code, you can reaffirm a debt by entering into a new written agreement with your creditor. For example, you may choose to reaffirm a car or home to prevent repossession during the bankruptcy. However, it may not be necessary to reaffirm your home because keeping current on your mortgage payments is usually enough to keep your lender happy. Consult your state’s foreclosure laws to determine whether you will be liable for the remainder you owe on the mortgage if you reaffirm and then lose your home to foreclosure.

Procedure

If you would like to reaffirm a debt, notify your attorney or the bankruptcy court and file Form 27 with the bankruptcy court. The form describes the debt you would like to reaffirm, including the type of debt and value of any collateral. Before the reaffirmation receives approval by the court, you may need to provide information about how you can afford to make payments toward this debt given your income and expenses.

Disadvantages

Reaffirming a debt can also have negative consequences. For example, if you reaffirm a debt and are unable to make payments, your creditor will be able to take steps to collect the debt, including the initiation of a civil lawsuit. In many instances, if you had not reaffirmed the debt, the debt may have been part of your bankruptcy discharge and no longer a legally enforceable debt.