reaffirmation vs redemption
Two options in Chapter 7 bankruptcy for dealing with secured debt — reaffirm the debt or redeem the asset at current market value.
Example
“Redemption of the car at its current value of $4,000 instead of reaffirming the $9,000 loan saved $5,000.”
Memory Tip
REDEEM vs REAFFIRM — redemption pays current value, not loan balance. Often better.
Why It Matters
Understanding reaffirmation versus redemption is crucial when you file Chapter 7 bankruptcy because it directly affects whether you keep your secured assets like cars or homes and how much you will ultimately pay. Choosing the wrong option could result in losing property you want to keep or paying more than necessary for items you no longer need.
Common Misconception
Many people believe that reaffirming a debt means the debt disappears or is forgiven through bankruptcy. In reality, reaffirmation means you are legally committing to repay the full debt even after bankruptcy, so the creditor can still pursue collection if you stop paying.
In Practice
Suppose you owe 15,000 dollars on a car worth 8,000 dollars in a Chapter 7 bankruptcy. You could reaffirm and continue paying the full 15,000 dollars to keep the car, or you could redeem by paying the current market value of 8,000 dollars in a lump sum to own it outright. If you cannot afford either option, you would surrender the vehicle.
Etymology
From Latin 'reaffirmare' meaning to affirm again versus Latin 'redimere' meaning to buy back.
Common Misspellings
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