As a bankruptcy lawyer, I help clients to file a Chapter 7 bankruptcy on a regular basis. This type of bankruptcy allows people to have the majority of their debts wiped out entirely. Not everyone qualifies as you need to pass a means test, but those that do can get a fresh start on life.
When considering whether or not you want to file a Chapter 7 it is important to think about what you want to keep and what you want to let go of. Your home, for example, can typically be kept if you are willing to continue making the mortgage payment. Likewise, your other secured debts can either be wiped out (this will require you to give back the item), you can buy it out (pay what you owe and keep the item) or you can reaffirm the loan agreement. This gives you a lot of flexibility in deciding what debts you want to keep based on which items you want to retain. For example, if you own two cars that each have loans on them you can decide to keep one and reaffirm the loan while giving the other car back to the bank so that the debt can be eliminated in the bankruptcy. The only exception to this is if you have a lot of equity in an asset, the court may require it to be sold so that the cash can be distributed amongst your debtors.
If you decide to reaffirm any of your debts, you should work with a bankruptcy lawyer to ensure that it is done correctly. Reaffirming basically means that you have decided to keep the asset, a car for example, and continue to make the loan payments. Since you have the option of giving it back and declaring the debt as part of your bankruptcy, you have room to negotiate with the lender. You continuing to make payments is in their best interest because they will recover the most amount of money. As such, some banks will negotiate with you. Typically smaller banks can be easier to work with, but we can help to negotiate on your behalf. Some lenders will agree to reduce the amount that you owe them while others may lower your interest rate and the amount of your monthly payment. This can be extremely helpful when you are trying to wipe out debts because you can’t financially afford the payments. For example, a car payment at $500 a month may be unreasonable while a payment of $300 may be affordable.
The creditor is under no obligation to renegotiate and offer you a better deal, but they often will as part of your reaffirmation agreement. Working with a professional bankruptcy lawyer can help to increase your chances of success. We find that as these negotiations take place, it is much easier to decide which assets to keep because a realistic picture of your total budget emerges. Once you know how much money you can afford to spend servicing debt, we can negotiate so that the assets you do keep, fit within that budget range.
