Reaffirmation Agreements in Bankruptcy

Reaffirmation agreements are contracts in a bankruptcycase in which you promise to pay back a creditor any money you owe them. Signing a reaffirmation agreement means that you agree to pay the creditor back the money that you owe them and that your debt will not be discharged as part of your bankruptcy. It is important that you understand what is involved in signing a reaffirmation agreement and what options you have if you change your mind after signing a reaffirmation agreement.

Why Would You Sign a Reaffirmation Agreement?

Some creditors require that you sign a reaffirmation agreement in order for them not to repossess property that is secured by the debt. Although there is a risk, mainly with personal property and vehicles, that a creditor will repossess the property if you fail to sign a reaffirmation agreement, it may not be in your best interest. Reaffirmation agreements are generally only signed for vehicles when you are concerned about your vehicle being repossessed. It is uncommon that a mortgage company will require that you sign a reaffirmation agreement in order to keep your house. Please also keep in mind that there are some courts that require that you reaffirm a debt for any secured personal property, that you intend to keep.

You may be able to negotiate with the creditor and restructure your payments and your loan when you sign a reaffirmation agreement. If you intend to sign a reaffirmation agreement, it is important that you call the creditor and try to negotiate the terms of the loan. If you are going to make yourself legally responsible for a debt after bankruptcy, try to get the best terms possible on that loan or debt.

An additional benefit to signing a reaffirmation agreement is that you will have your monthly payments reported on your credit report, which helps you reestablish your credit. When you do not reaffirm a debt and continue to just make your monthly payments, creditors may not report your monthly payments to the credit bureaus.

How Does the Process Work?

Under Section 524 (c) of bankruptcy code you have a right to reaffirm a debt in your bankruptcy case. There are specific disclosures that the creditor must provide to you in order to a debt to be reaffirmed. Once you sign the disclosures and reaffirmation agreement, the documents must be filed with the bankruptcy court. A reaffirmation hearing generally is set whenever an attorney does not represents you in the reaffirmation agreement or does not sign the reaffirmation agreement..An attorney may not sign a reaffirmation agreement because they are uncertain whether you will be able to afford the vehicle in the future or whether it is in your best interest.

If a reaffirmation hearing is set you will required to attend the reaffirmation hearing in which a judge will decide whether reaffirming the debt is in your best interest. You must prove to the judge at the reaffirmation hearing that you can continue to make the monthly payments on the reaffirmed debt without it imposing an undue burden on you and your family. At the hearing the judge will ask you questions in regards to whether you can afford the vehicle payments and whether the vehicle is a necessity. Reaffirmation hearings are not required if you are reaffirming a mortgage or if the debt you are reaffirming involves a debt between you and a credit union.

What Happens When You Don't Pay A Reaffirmed Debt?

If you fail to pay a reaffirmed debt then the creditor will have a right to come after you for the debt. The bankruptcy case that you filed will not protect you from a debt that you have reaffirmed in your bankruptcy case. A creditor will have the normal legal rights to collect against you including filing a lawsuit against you and repossessing any property that is secured by the debt.

What Happens If you Signed a Reaffirmation Agreement, But Changed Your Mind?

The bankruptcy code gives you a cooling off period to change your mind about any reaffirmation agreement you signed. After singing a reaffirmation agreement you have a right to cancel the agreement within 60 days of the agreement being filed or prior to the court entering a discharge (whichever is later).

If you have signed a reaffirmation agreement and you change your mind, then you will have to withdraw your consent. In order for the reaffirmation agreement to be revoked you must write a letter to the creditor and provide a copy to the court that informs them that you wish to revoke the reaffirmation agreement.

Final Note

Ultimately it is you who has to evaluate first and foremost if it is in your best interest to reaffirm a debt. You need to examine your income and expenses and determine if you will be able to afford to continue to make payments on the reaffirmed debt in the future.

From Southern California Law Advocates: Riverside Bankruptcy Attorney & Long Beach Bankruptcy Lawyer