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Bankruptcy has two major misconceptions among the people. While some people feel they might end up losing all their assets if they file for bankruptcy and other people feel they might evade all their debts and eventually retain all their assets as well. Both the assumptions and misconceptions are incorrect. Not all debts are discharged and not all assets are liquidated. You can learn more about bankruptcy myths and facts on https://www.recoverylawgroup.com/bankruptcy/.
Secured loan and bankruptcy
A loan might have two aspects one could be a promissory note and the other could be a security agreement. This is most seen in a secured loan setup. Even though the agreement might not indicate two agreements separately as promissory note and security, it might imply the same. The note might include general loan terms, like tenure, interest rate, installments, etc. The other part security agreement might discuss the rights of the lender in case of defaults. This might include the right to lien, foreclose, or seize a particular property. If a loan is backed by an asset it cannot be discharged just like that. The debtor must give up on the asset to allow for a discharge of the debt.
Unsecured loan and affirmation
Unsecured loans are basically loan agreements that have only a promissory note and no discussion about any asset or any guarantee to pursue or bind the debtor in case of default. The bulk of the unsecured loans are discharged during bankruptcy either by Chapter 7 or 13. Affirmation on the other hand is an intention to continue or hold any debt to retain the asset. This is indicated on the ‘statement of intention’ document which is one of the required documents while filing for bankruptcy. In this statement, the secured debts are listed and the debt which is intended to continue is mentioned.
How to decide between redemption and reaffirmation?
Redemption is a process where you do not intend to continue the debt and are willing to forgo the asset associated with it. This is extremely practical and viable for an asset whose debts are more than the actual worth of the asset. For instance, a car that is worth say $10k and you have debts pending worth $12k does not make any practical sense to retain the asset and repay the same. This is an idea scenario when the filer can opt for redemption under Chapter 7 instead of affirmation.
On the other hand, if there is an asset where you have paid in maximum equity and it is an appreciating asset or something of immense emotional or sentimental value, affirmation becomes a good choice. Any debt which is reaffirmed is moved out of bankruptcy proceedings and the debt will not be discharged. Reaffirming a debt is not an easy task as most people filing for bankruptcy can ill-afford it. There might be a hearing necessary to resolve a dispute with the bankruptcy trustee or other lenders to source funding for the debt reaffirmed. Only necessary assets are reaffirmed generally. If you are also in dilemma and want to figure out whether to reaffirm or redeem, dial 888-297-6203 to connect to experts from Los Angeles & Dallas, TX instantly.