What happens if I do not reaffirm my home mortgage or my car loan? And why do they say I can make “voluntary payments” if I want to?
Short answer: you can generally keep the car or home, so long as you keep paying on the loan
Long answer: It’s complicated.
When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.
I’ve written a few blog topics on reaffirmation generally, and those links are listed below.
If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.
(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).
But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.
Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.
As for the home, so long as you keep paying on it, it’s yours.
As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.
Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming: