Reaffirmation Agreements in Bankruptcy

A reaffirmation agreement is a legally enforceable agreement to repay all or a portion of a debt that would otherwise have been discharged in your bankruptcy.  In order for the agreement to be valid, the creditor must sign the agreement as well as either your attorney or the Judge.  This is a situation where Congress has substituted the attorney’s judgment for your judgment.  We will not sign the reaffirmation agreement unless I believe that reaffirming the debt is in your best interest and you can afford to repay the debt.  Once all parties have signed the agreement it must be filed with the court prior to the deadline issued by the Court.

A creditor that has a debt secured by an interest in real property (e.g., a house) cannot foreclose on the property simply because you chose not to reaffirm the debt.  However, the creditor may elect not to send you statements and may choose not to report payments to credit reporting agencies.  I discourage my clients from reaffirming on home loans.    However, reaffirming a loan secured by your house may make it easier to reestablish your credit, pursue a loan modification, or simply communicate with your bank.  Therefore, some clients elect to pursue a reaffirmation agreement on a home loan.

In order for the reaffirmation agreement to be valid either your attorney or the judge has to approve it.  If I, as your attorney, am approving the reaffirmation agreement I must sign a declaration that I believe that the agreement does not impose an undue hardship on you or your dependents.  I will not sign the reaffirmation agreement if your budget does not support the position that you can afford the payments.  I also will not sign the reaffirmation agreement if the interest rate is unreasonable or if the value of the property is significantly less than the amount owed on the debt.

If I will not approve the reaffirmation agreement, then it can be noted for approval by the judge.  I can assist in getting the agreement noted for a hearing.  However, you will represent yourself during the hearing.  The judge will schedule a telephone conference at which time he or she will explain to you the consequences of reaffirming.  The judge will most likely not approve the reaffirmation agreement either.

Once you have gone through this process the creditor cannot repossess the property unless you are in default on your contract (e.g., behind on the payments or don’t have insurance).  Debtors who timely offer to enter into reaffirmation agreements and are not in default on the loan may keep their cars even if the bankruptcy court does not approve the reaffirmation agreement.

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By: Guss Markwell