Reaffirmation Agreement vs. Chapter 13

 Posted on October 30, 2025 in Bankruptcy Options

When you file for bankruptcy, one of the most important questions you face is whether you can keep your stuff. If you are considering bankruptcy in Texas, you may have heard about reaffirmation agreements under Chapter 7 or the option of filing for Chapter 13 bankruptcy to catch up on missed payments. Both paths can help you keep your property, but they work in very different ways. Understanding the difference is key to making the right decision.

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What Is a Reaffirmation Agreement?

A reaffirmation agreement is a formal contract between you and a creditor in a Chapter 7 bankruptcy case. It allows you to keep secured property, such as a car, by agreeing to continue making payments on that debt.

When you reaffirm, you are voluntarily choosing to exclude that particular loan from your bankruptcy discharge. This means that even though other debts are wiped out, you remain personally responsible for repaying the reaffirmed debt.

For example, if you file Chapter 7 bankruptcy and owe $10,000 on your car loan, reaffirming means you keep the car and continue making payments as if you had never filed bankruptcy.

Under 11 U.S.C. § 524(c), reaffirmation agreements must be approved by the court. Your bankruptcy attorney is required to certify that the agreement is voluntary and in your best interest.

When Is a Reaffirmation Agreement a Good Option?

A reaffirmation agreement is usually beneficial when you are current on your payments and want to keep the property. In addition, the asset should be essential to your daily life or job. You should also make sure that the loan terms are reasonable and you can afford to keep paying.

If you are behind on payments but can catch up quickly, many creditors will still agree to reaffirm. Some may even adjust your loan by extending the repayment period or moving missed payments to the end of the contract.

The biggest advantage of reaffirmation is that it helps you rebuild credit. Since you continue paying on the loan, those payments can appear on your credit report, showing that you are honoring your commitments after bankruptcy.

However, reaffirmation has risks. If you later default, the creditor can repossess the property and sue you for any remaining balance. Once reaffirmed, that debt is not protected by your bankruptcy discharge.

When Might Chapter 13 be a Better Choice than Reaffirmation?

If you are behind on payments or your loan terms are unreasonable, Chapter 13 bankruptcy may be a better option. In a Chapter 13 case, you do not reaffirm individual debts. Instead, you propose a repayment plan that consolidates all of your debts into one monthly payment made to a bankruptcy trustee over three to five years.

This plan allows you to catch up on past-due payments while keeping your property. For example, if you are several months behind on your car loan or mortgage, Chapter 13 lets you spread out those missed payments over time rather than paying them all at once. This can be especially helpful if your creditor refuses to offer new terms or is threatening repossession.

What Is a Cramdown in Chapter 13?

One of the biggest advantages of Chapter 13 is the ability to reduce what you owe on certain secured debts through a process known as a cramdown. A cramdown allows you to pay only the current fair market value of the property rather than the full loan balance. This option is available for personal property like cars but not for your home.

For example, if you owe $12,000 on a car that is only worth $7,000, a Chapter 13 cramdown can reduce the secured portion of your debt to $7,000. The remaining $5,000 becomes unsecured debt and may be discharged at the end of your repayment plan.

What Should I Do if My Creditor Won’t Let Me Reaffirm?

In most cases, creditors are happy to reaffirm debts because it keeps you legally responsible for payment. But sometimes, a creditor may refuse. This can happen if you have a history of late or missed payments, or if you have not had insurance on your car. A lender may also decide against letting you reaffirm if they simply believe you are a high-risk account that the lender wants to close.

If your creditor refuses reaffirmation, Chapter 13 may be your only practical way to keep the property. In a Chapter 13 plan, the creditor cannot simply reject your payment proposal as long as it complies with bankruptcy laws. The court must approve your plan, and the creditor must accept payments through the trustee.

Is Reaffirming or Chapter 13 Right for Me? 

Choosing between reaffirming a debt in Chapter 7 and restructuring through Chapter 13 depends on your goals, financial situation, and the value of your property.

Ask yourself these questions:

• Am I current on my secured debt payments?

• Can I afford to keep paying off this loan under the current terms?

• Is the property worth what I owe?

• Do I have other debts that make repayment difficult?

If you can stay current and the loan is reasonable, reaffirmation under Chapter 7 may be best. If you are behind or your debts are overwhelming, Chapter 13 may give you the protection and breathing room you need.

Talk to an Experienced San Antonio Bankruptcy Lawyer

The wrong bankruptcy choice can have long-term financial consequences. With more than 25 years of experience, the New Braunfels bankruptcy attorney at the Law Offices of Chance M. McGhee helps clients understand their options and make informed decisions.

Our firm will review your financial situation and guide you through every step of the bankruptcy process. We can help you build a plan that protects your assets and gives you a true fresh start.

Call the Law Offices of Chance M. McGhee at 210-342-3400 today to schedule a free consultation with a highly rated bankruptcy lawyer.