Some people show up to meet with us and ask to be able to keep certain debts. The most common are (1) houses, (2) cars, and (3) credit cards. For the first two, we usually say that those items, and the underlying debts, can be retained. We also strongly encourage individuals to simply not worry and let go of credit cards. Other types of debts that people want to keep can include loans to family members, medical practitioners, and consumer products such as vacuums and beds.
The proper way to retain such debt (except for homes because mortgage holders have to follow certain foreclosure protocols, and courts generally do not sign reaffirmation agreements on homes), with the creditor retaining all of its rights to collect after the bankruptcy is concluded, is for the parties to draft and sign a reaffirmation agreement. These agreements are not favored under the Bankruptcy Code, and courts, because the purpose of the bankruptcy is to allow the bankruptcy debtor to obtain a fresh start, and be free from debt. Additionally, debtors are free to voluntarily pay any individual after the bankruptcy.
Reaffirmation agreements are court specific forms that provide the parties notice that, if the court approves the agreement, the debt remains in force. The effect of such agreements is that if the debtor does not pay, the creditor can sue and attempt to collect on the debt as if no bankruptcy had occurred.
In the case of vehicles, generally automobile lenders will furnish the debtor, or debtor’s attorney, with a mostly filled out reaffirmation agreement. If the parties desire to enter into such an agreement, the documents are filled out, signed, and filed with the court. The court then has the ability to approve or deny the agreement.
With cars, some lenders do not require a reaffirmation agreement. Many lenders will allow the borrowers to simply make the payments, and ride-through the bankruptcy case.
The bottom line here is that reaffirming debts should be done with extreme caution. If you can’t afford a vehicle, let it go in a bankruptcy. You will not have personal liability after the case. If you need the car, you can either pay for it and not reaffirm, or reaffirm and also pay for it. But, if you reaffirm the debt, do not miss your payments.