When filing a Chapter 7 bankruptcy, you run the risk of losing assets, especially those you do not currently outright own. It is common for someone filing bankruptcy to have a car loan, for example.
If you have a car loan but you wish to keep the vehicle, then you may be able to do so by creating an reaffirmation agreement.
According to Bankrate, a reaffirmation agreement is an new deal between you and your lender that states you will continue paying on the loan as agreed to in your original loan documents. It tells the court that you do not wish to include this debt in your bankruptcy and that you agree to keep the payments currents.
Just as with your original agreement for the loan, if you stop making payments, the lender can repossess the vehicle. The reaffirmation agreement removes the effect of the bankruptcy on your loan.
Good or bad
In most cases, your lender will require that you create a reaffirmation agreement to keep the vehicle. If you do not have one, you will probably face losing your vehicle once your bankruptcy is over and the automatic stay lifts.
If you owe a lot of money and you worry about continuing payments, then it is probably not a good idea to reaffirm the loan. However, if you know you can afford it, then reaffirming will allow you to start rebuilding your credit right away because the payments will report on your credit. In addition, it lets you protect a co-signer if you have one.