A reaffirmation agreement legally obligates the debtor to pay all or a portion of otherwise dischargeable debts. It is a voluntary agreement not required by bankruptcy codes. Bankruptcy attorney Benjamin Ginter runs the Law Offices of Benjamin J. Ginter in Cranford, New Jersey. Here, he explains what reaffirmation agreements are all about.
The reason for a reaffirmation agreement
Reaffirming your debt can be an important part of a bankruptcy procedure. You can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid legal reasons for reaffirming a specific debt, such as a vehicle loan. Through a reaffirmation agreement, you can keep either collateral or mortgaged property that would normally be subject to being repossessed.
This kind of agreement is one made by the debtor and the creditor, where the debtor agrees to continue paying for the debt even though he filed for bankruptcy, and the debt could therefore be legally discharged. Basically, it is an agreement by a Chapter 7 debtor to continue paying debts after the bankruptcy.
In some cases, debtors have mortgage or car finance payments, and they want to keep their house or car. That’s why they sign a reaffirmation agreement, which allows them to keep the asset as long as they continue to pay for them. Such an agreement is usually made when a debtor wants to keep any large piece of secured property, such as a house, a car or even an airplane.
When to sign a reaffirmation agreement
According to the 2005 Bankruptcy Reform Act, a reaffirmation agreement must be signed prior to the filing of a discharge in bankruptcy and before the debtor receives the disclosures required from the creditors.
No risk is involved unless you know that you are unable to pay back the debt. In other words, it can be worth signing if you need a vehicle to get you to and from work, but not if you know that finally you will fail to pay back the debt.