Keep and Pay

Navigating bankruptcy can be complex, especially when it comes to deciding what to do with secured assets like your home or vehicle. One often misunderstood option is known as “Keep and Pay.” This strategy allows debtors to retain certain assets by continuing payments without formally reaffirming the debt.

In this guide, we’ll break down what “Keep and Pay” means, how it works in Chapter 7 bankruptcy cases, its legal standing, real-world application, and key considerations—all with practical clarity and legal awareness.

What Is “Keep and Pay”?

“Keep and Pay” refers to a debtor’s decision during bankruptcy to retain a secured asset (such as a car or home) and continue making payments under the original loan agreement, rather than surrendering the asset or entering a reaffirmation agreement.

This strategy allows the debtor to:

• Keep using the asset (e.g., a car for commuting).
• Avoid reaffirming the debt, which would otherwise make them personally liable even after discharge.

Unlike reaffirmation, “Keep and Pay” does not involve signing a new agreement with the creditor. Instead, the debtor simply keeps paying as usual and remains in good standing.

When Is “Keep and Pay” Used?

“Keep and Pay” is most commonly used in Chapter 7 bankruptcy cases. It is particularly helpful for individuals who:

• Are current on their secured debt payments.
• Want to avoid legal liability for the debt after discharge.
• Need to keep essential items, such as transportation or housing.

However, this option may not be recognized in all jurisdictions. Some bankruptcy courts require a formal reaffirmation agreement or surrender of the asset, even if payments are current.

Legal Recognition and Jurisdictional Variance

Federal courts across the United States have varying interpretations of whether “Keep and Pay” is permissible under Chapter 7.

Some jurisdictions, like those under the Ninth Circuit, have historically allowed debtors to continue making payments without reaffirming. Other courts, however, consider reaffirmation mandatory if the debtor wants to retain the asset.

Important: Always consult a qualified bankruptcy attorney to determine whether “Keep and Pay” is an option in your specific jurisdiction.

Example

Scenario: John files for Chapter 7 bankruptcy. He owns a vehicle worth $12,000 and still owes $10,000 on the auto loan. He is up to date on his payments and needs the car to maintain his job.

Rather than surrender the vehicle or sign a reaffirmation agreement, John continues making his monthly payments of $250. His lender accepts the payments, and John keeps the vehicle. Meanwhile, his remaining unsecured debts (e.g., credit cards, medical bills) are discharged in bankruptcy.

This allows John to:

• Retain essential transportation.
• Avoid personal liabilityon the loan if he defaults in the future.
• Focus financial resources on rebuilding after discharge.

Common Misconceptions

1. “Keep and Pay” changes the loan agreement.
2. → False. The debtor continues paying under the original contract. No new terms are negotiated.
3. It applies to all types of debts.
4. → False. “Keep and Pay” only applies tosecured debts—those tied to specific property like a car or home.
5. You can stop paying at any time.
6. → False. If you stop paying, the creditor canrepossess the asset, even though they cannot pursue you personally for the debt in most cases (unless a reaffirmation was signed).

Risks and Considerations

• Repossession risk:If you fall behind on payments, the lender can take back the asset without court approval.
• Creditor refusal:Some lenders may not permit “Keep and Pay” and could demand a reaffirmation agreement.
• Jurisdictional differences:Legal treatment varies; in some areas, courts require reaffirmation for retention.

Alternatives to “Keep and Pay”

• Reaffirmation Agreement:Legally binds you to repay the debt. May help with credit rebuilding but exposes you to liability post-bankruptcy.
• Redemption:Allows you to pay a lump sum equal to the asset’s current value, rather than the remaining loan balance.
• Surrender:You return the asset to the lender, and the debt is discharged.

Each option has benefits and risks. Choose based on your asset’s value, loan terms, and legal standing in your jurisdiction.

FAQs About “Keep and Pay”

Q: Can I use “Keep and Pay” for unsecured debts like credit cards?
A: No. It applies only to secured debts.

Q: Will my payments be reported to credit bureaus?
A: Not always. Some lenders stop reporting post-bankruptcy unless a reaffirmation is filed.

Q: What happens if I stop paying?
A: The lender can repossess the asset, but cannot sue you for the balance unless you reaffirmed the debt.

Key Takeaways

• “Keep and Pay”allows you to retain a secured asset during Chapter 7 by continuing payments without signing a reaffirmation agreement.
• It isnot recognized in all jurisdictions, and its legality can vary significantly across courts.
• This strategy applies only tosecured assets, such as cars and homes with active loans.
• It doesnot change the loan terms—you must pay as agreed to keep the asset.
• Legal advice is essentialbefore proceeding with this strategy.