If you have secured debt, such as a home or car that you want to keep, you may be able to keep the property in a Chapter 7 bankruptcy by continuing to pay for the property according to the contract and executing a reaffirmation agreement. This means that you agree to keep making payments as if there had never been a bankruptcy filing. On most auto loans and house mortgages, the creditor will require that the entire loan be reaffirmed, the loan be current and the regular monthly payment be maintained.
If a debt is properly reaffirmed, the debtor is usually entitled to retain the property. Failure to make payments following the reaffirmation of a debt can result in foreclosure or repossession just like before the bankruptcy was filed. After discharge in the bankruptcy, if the debtor fails to pay a reaffirmed debt, the creditor can sue to collect any deficiency after the sale.
Home equity loans secured by the homestead may or may not have to be reaffirmed. The case law varies. Home equity loans secured by the homestead in Texas are non-recourse debts which means that if the lender forecloses and doesn’t get enough money to pay off the loan, the lender cannot come after the debtor to collect the deficiency.
Sometimes, creditors will negotiate with the Debtor and offer a more favorable interest rate or repayment terms for a reaffirmation agreement. This is voluntary on the part of the creditor, however, and they cannot be forced to give better terms. The debtor may revoke a reaffirmation agreement within a certain time period. If the reaffirmation agreement is not timely revoked, the debtor must pay the debt back or he will be liable for the debt despite the bankruptcy.