In a Chapter 7 bankruptcy, it is fairly common for a family to own a house or a car or even some other item which is "secured," that is, the property serves as collateral in the even the family cannot pay the mortgage or the car loan. In other words, the debtor has the right to take the property; while the bankruptcy may delay this process, it does not prevent the bank from taking back the house or car.
In order to prevent this, many Louisville residents will consider reaffirming their debt to the bank which has the rights to the collateral, especially if they have managed to keep up with the house or the car payments.
By reaffirming, a debtor is effectively saying that, without regard to the bankruptcy, they will make sure the debt gets paid. The legal effect of a reaffirmation is that the creditor will maintain its rights to take collection action against the debtors, even after the creditor seizes the collateral.
After reaffirmation, the only way a debtor can stop creditor harassment on the reaffirmed debt is to wait the legal amount of time, usually years, and file bankruptcy again. Otherwise, they must pay or work something out with their creditor. While this does not matter so long as a debtor keeps making payments, it can be a disaster if further financial hardships strike a family and leave them unable to pay their reaffirmed debts.
Whether or not to reaffirm a secured debt is an important decision that Louisville, Kentucky, residents need to discuss with their bankruptcy attorneys. They should know that other options may be better for them and, at a minimum, be aware of the full consequences of signing a reaffirmation agreement.