Reaffirmation Agreement: How Does it Work?

After a debtor files for and successfully completes a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, he receives a discharge from the court, which relieves him of all personal liability on debts, including both unsecured and secured debts.

Entering into a reaffirmation agreement with a creditor essentially gives up the discharge and reaffirms one’s promise to pay the debt. The agreement states that both parties agree to treat that specific debt as if the debtor never filed bankruptcy. In the case of a car, if he cannot make payments one day, the creditor can repossess the car, sell the car at auction, and sue him on the deficiency still owed.

A debtor should give much thought to whether he can make future payments before signing a reaffirmation agreement for any debt.

Such an agreement undermines the very goal of filing a personal bankruptcy, which is to get one’s debts discharged and get a fresh new start.

When Could a Reaffirmation Agreement Be Beneficial to a Debtor?

A secured debt is one in which a debtor promised collateral or property against a loan, such as a vehicle loan. If you stop paying, the lender repossesses or forecloses on the collateral. After a debtor files bankruptcy, the creditor cannot collect money from him personally but can repossess the vehicle or foreclose on the home once the lender is granted relief from stay.

A situation where a debtor who filed Chapter 7 bankruptcy may benefit from signing a reaffirmation agreement is if he absolutely needs the collateral, e.g. his car, and the lender requires the reaffirmation agreement in order to keep the car. This is rarely the case, however.

Normally we recommend the debtor do what is called a pass-through. This means you simply keep paying on the secured debt after filing bankruptcy. In most cases, the lender is perfectly happy to keep getting the payments and does not require a reaffirmation agreement.

What Are the Requirements for a Reaffirmation Agreement?

Within 30 days of filing a Chapter 7 bankruptcy petition or before the first date of the meeting of creditors, the debtor is required to file with the court his statement of intentions indicating whether he intends to reaffirm or redeem the property in question for each secured debt.

The question of whether to sign a reaffirmation agreement for a mortgage is much more complicated and is generally not advised.

The process of entering into a reaffirmation agreement is much easier when you are represented by an experienced Bankruptcy Attorney. Without representation from a bankruptcy attorney , the court will schedule a hearing which both you and your creditor will need to attend.

The purpose of the hearing is to ensure that the reaffirmation agreement complies with all the rules. At the hearing, the judge will deny the reaffirmation agreement if the agreement would pose an undue hardship for the debtor or his dependent or if it is not in the best interest of the debtor.

If you go through this process with a bankruptcy attorney, a hearing is not required. Instead, the court requires the bankruptcy attorney to submit an affidavit attesting that the debtor :

1) is fully informed and entering into the agreement voluntarily;

2) will not be placed under undue hardship as a result of the entering the agreement;

3) was fully advised by the attorney regarding the legal consequences of the agreement and any default under the agreement. 11 U.S. C. Section 524 (c) .

Before the agreement can be filed with the court, the creditor and the debtor must sign it. After you sign a reaffirmation agreement, you can rescind the agreement before the discharge or within 60 days of signing it.

Contact a Denver Bankruptcy Attorney

Reaffirming a debt is a decision that should be taken very seriously. As a former trustee for the U.S. Bankruptcy Court , with over thirty years experience, Attorney Martin Long is an expert in the industry with decades of experience in Bankruptcy Law in Colorado including Loveland and Aurora, Centennial, Highlands Ranch, Denver, Englewood, Littleton, Castle Rock, Colorado and the Denver metro area with three convenient locations. For help with your financial matter, call the Law Office of Long & Long for a free initial consultation about your bankruptcy matter at 303-832-2655 or go to www.denverbankruptcylawyer.net or www.cobklaw.com and make a consultation request.