What it is:
How it works/Example:
For example, let's assume that John Doe borrowed $100,000 from Bank XYZ for a luxury car. In the middle of the five-year loan term, John loses his job and defaults on the loan. After lengthy negotiations, Bank XYZ writes off the remaining $30,000 loan balance.
Why it matters:
Reaffirmation is voluntary, and the courts often allow borrowers to repay debt that they have defaulted on without incurring further financial penalty from the . Often it is an ethical decision on the part of the borrower and can sometimes (but not always) improve the borrower's credit rating. It is important to that borrowers who file Chapter 13 cannot reaffirm debt.