To Keep or Not To Keep: Property Options With Chapter 7 Bankruptcy

Many people who are forced to file Chapter 7 bankruptcy due to overwhelming debt burden wonder what is going to happen to their main assets, such as a home and a car. Some are even under impression that their belongings will be taken away by creditors and sold. However, a decision whether to keep or give up the property is entirely up to you. There are three options to consider: to reaffirm, to redeem, or to surrender the property. It is advisable to get professional help in order to determine which option is right for you, but you may make a decision yourself also. So, what is the difference between the three?ReaffirmationThis is the most popular option that people exercise when filing Chapter 7 bankruptcy. If you decide to reaffirm, you are to continue making payments on your car loan and/or mortgage, instead of discharging this debt in bankruptcy. Nothing changes for you in terms of your agreements with lenders and your monthly payments. The fact, that you are seeking protection from creditors under U.S. Bankruptcy Law does not mean, however, that your lender does not have the right to repossess your property should you fail to make your scheduled payments. Typically, it is not a problem for borrowers, as they get rid of all other debts, and have more disposable income to attribute towards loan servicing. However, if you feel that you will not be in position to afford these payments, reaffirmation option may not be right for you, and you may consider other options.Redeeming the PropertyThis is a great opportunity to pay less for the property should you be upside down on your loans, as redeeming the property allows you to make one lump sum payment equal to present market value of your property. For example, if you owe $7,000 on your car loan, and your car presently is worth only $4,500, you may pay your car lender the market value of $4,500 and keep the car without any need to make any further monthly payments on your loan. It is a great money-saving option, but for many people who are in bankruptcy proceedings, it is hard to come up with several thousand dollars to part their ways with lenders. Should you not be able to come up with a needed sum of money, you may seek alternative options, such as borrowing from your family and friends, or seeking the services of redemption loan vendors, who specialize in such loans. While the interest on such loans may be quite high, the overall benefit of redemption is still considerable.Surrendering the PropertyIn case you do not need your house or a vehicle, or feel like you will not be able to afford monthly payments, you may choose to surrender your property. By surrendering your home or a car, you totally eliminate your debt by giving up your property. While such option may not seem appealing to many borrowers, in certain cases it is a good idea. It may help you to get rid of toxic assets with high loan balances and low market value, or just give you a fresh, debt-free start, allowing you to keep all of your income instead of disbursing parts of it to lenders.