Filing bankruptcy stops creditors' collections against you immediately. But sometimes a creditor tries to get permission to collect anyway.
Here are examples of the reaffirmation of a secured debt (like a vehicle loan) in a Chapter 7 case vs. addressing it in a Chapter 13 case.
You can usually keep collateral you need to keep by entering into a "reaffirmation agreement" with the creditor during your Chapter 7 case.
Filing a Chapter 7 or 13 case both stop creditor collection actions against you just the same. But after that the differences are huge.
If your vehicle is worth less than its debt, and you can get the money representing that value, you can "redeem" the vehicle free and clear.
Chapter 13 vehicle loan cramdown solves a number of serious practical problems that even Chapter 7 "straight bankruptcy" can't.
If your vehicle is worth less than you owe on it, under Chapter 7 you can keep it by "redeeming" it--paying its present value in full.
In a Chapter 7 case you "reaffirm" your vehicle loan if you want to keep your vehicle. This means you keep paying it.
Although Chapter 7 can work fine if you're current on your lease, use Chapter 13 instead if you're behind and need time to catch up.
If you want secured creditors to be paid in your Chapter 13 plan, they must file proofs of claim. Let's use the example of a vehicle loan.
Chapter 13 gives you powerful ways to hold onto a vehicle, but it also lets you give up that vehicle without paying its debt.
A vehicle lease can cost you less up-front and each month, but is in reality very expensive. Bankruptcy is your way to break the contract.
A reaffirmation agreement is a document, usually prepared by your vehicle lender, which you sign and is then filed at the bankruptcy court.
You may be able to keep your vehicle for less money by "redeeming" itâpaying its present fair market value instead of the full debt.
A reaffirmation agreement makes you still liable on your vehicle loan so you can keep your car or truck after writing off your other debts.