What are Alternatives to Reaffirmation?

Despite the public perception that Chapter 7 bankruptcy involves losing everything, the reality is far less negative. Firstly, bankruptcy is a sign of improving one’s financial standing and credit history, not going down the hole. Second, a person filing for bankruptcy does not necessarily have to lose all of their assets—in fact, in most Chapter 7 bankruptcies, this does not happen at all.

If you file Chapter 7, you can decide to reaffirm certain assets and their associated debts in order to keep the asset. This is most commonly done with automobiles. Reaffirmation consists of a contract between a debtor and lender permitting the former to assume responsibility for an asset and its associated debt. Usually, debtors reaffirm assets pledged as loan collateral, such as motor vehicles.

The decision to reaffirm an asset is made at a reaffirmation hearing. The debtor appears before a judge who must ensure that the debtor has the finances to assume responsibility for the asset. In addition, the judge must inform the debtor of the alternatives to reaffirmation: surrender and redemption.

What does Surrender and Redemption Mean?

Surrender and Redemption are the two primary alternatives to reaffirmation. It is necessary to pursue an alternative to reaffirmation if the debtor’s present financial situation is not sufficiently stable to pay off the asset’s debt in a timely and consistent manner.


Given the strained financial circumstance of a debtor, surrender is a common option. In surrender, the creditor takes back the car and the debtor is absolved of his or her responsibility to continue to make payments on it.

Surrender also comes with some debtor protections. If the creditor decides to sell the asset to the cover the cost of the debt and the asset ends up being worth significantly less than its debt, then the creditor cannot sue the debtor for the additional amount if done through bankruptcy. Furthermore, if the asset is sold for more than the value of the debt, then any extra funds received go to the debtor, not the creditor who sold it.


In addition to surrendering assets, a debtor may redeem an asset. The debtor must then file a motion of redemption and pay for the asset in cash. The value of the asset is fixed at the value determined at the time of the bankruptcy, despite any changes that may have occurred since then. Redemption is often the best choice if the cash value of an asset is less than what the debtor would end up paying by reaffirming its debt.

Experienced New Jersey Bankruptcy Lawyers

Bankruptcy and reaffirmation hearings are incredibly complex and debtors may find themselves in financially binding situations if they are not properly prepared for them. An experienced bankruptcy attorney will guide you through the procedure long before it ever occurs so that you can walk into the hearing confident and informed about all of the legal avenues and resources available.

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