Often, consumers who wish to keep automobiles through a bankruptcy proceeding are required to reaffirm the debt. Remember that a bankruptcy wipes out your personal obligations to pay debt. In order to keep a financed car, many states require reaffirmation. A debtor must be certain he or she can afford to make the required payments before agreeing to reaffirm because a reaffimed debt will survive the bankruptcy. Further, the Bankruptcy Court will not approve the reaffirmation agreement if it will result in a financial burden. If it appears that the debtor cannot afford the reaffirmed debt, a hearing will be conducted to determine whether payments can be made. Although reaffirming a debt binds the debtor to future payments, reaffirming certain debt has its benefits. It is possible for your bankruptcy attorney to negotiate with the creditor to reduce interest rates and in rare cases, the principal balance on the existing debt. I attempt this tactic when a client needs to keep a car and is suffering from a high interest rate. The necessity of the asset and the debtor’s future financial outlook are critical to this determination.

Because a reaffirmation agreement is a new contract between a debtor and a creditor, the terms of the contract can be renegotiated. If the asset is a necessity, a debtor may be able to renegotiate the terms of the contract and end up with a better deal than he or she would otherwise be able to procure after the bankruptcy proceedings conclude. The option to amend the statement of intentions to surrender the asset can be used as a bargaining chip in the negotiations. If a creditor refuses to negotiate or if satisfactory terms cannot be attained, surrendering the asset is an option.  

- Richard V. Stokan, Jr.