For Colorado residents struggling with debt, it can be scary not knowing what will happen to them or their assets. Many may have found themselves deep in personal debt through no fault of their own. No matter what the reason, individuals just want to get back on track financially and rid themselves of overwhelming debt.
Chapter 7 bankruptcy may be one option for these individuals to discharge their debt. However, many may fear filing for bankruptcy because they are afraid of what will happen to their assets.
Under Chapter 7, a debtor's assets are liquidated to pay off their debts. However, certain assets are exempted, meaning the debtor is allowed to keep these items.
In some cases, an asset may not be exempted, but this does not necessarily mean the debtor loses the asset. For instance, the debtor may choose to enter into a reaffirmation agreement with a creditor. This is a contract that is filed with the bankruptcy court, under which the debtor promises to repay some debt that is otherwise discharged in the bankruptcy.
The tradeoff is that the creditor promises not to repossess the asset as long as the debtor continues to pay off the debt. Accordingly, if the debtor is not able to claim an exemption for an automobile, for example, the debtor might be able to enter a reaffirmation agreement where the debtor can still keep the car if he or she pays back the debt after bankruptcy.
There are certain requirements for entering into and filing reaffirmation agreements. Accordingly, the debtor should work with a qualified bankruptcy attorney to determine what exemptions are available, and whether a reaffirmation agreement is a wise move if there are no exemptions available for a particular asset the debtor wishes to keep.
Source: Fox Business, "How does divorce affect bankruptcy and mortgage?," Justin Harelik, Jul. 3, 2013