Reaffirmation Agreements in Chapter 7 Bankruptcy
“To reaffirm or not to reaffirm, that is the question!” Reaffirmation agreements can be a double-edged sword.
What Is a Reaffirmation Agreement?
A reaffirmation agreement is a legally enforceable agreement to repay all or a portion of a debt that would otherwise be discharged in your bankruptcy. For the agreement to be valid, the creditor must sign it, along with either your attorney or the judge. This is a situation where Congress has substituted my judgment for your judgment. I won’t sign a reaffirmation agreement unless I believe reaffirming the debt is in your best interest and that you can afford to repay it. Once all parties have signed, the agreement must be filed with the court before the court’s deadline.
Reaffirmation Agreements on Home Loans
A creditor with a debt secured by real property, like a house, cannot foreclose simply because you chose not to reaffirm the debt. However, the creditor may stop sending you statements and may choose not to report your payments to the credit reporting agencies. I discourage my clients from reaffirming home loans. Still, reaffirming a loan secured by your house may make it easier to rebuild your credit, pursue a loan modification, or simply communicate with your bank, so some clients choose to do it.
Reaffirmation Agreements on Car Loans
A creditor with a debt secured by personal property, like a car, may repossess the property if you haven’t entered into a reaffirmation agreement or redeemed the property within 30 days of your creditors meeting. Generally, creditors would rather keep collecting payments than repossess a car, but every creditor is different, and you should discuss with me whether reaffirming a car loan makes sense. In many cases, it doesn’t.
How Do I Reaffirm a Loan in Chapter 7?
If I’m approving the agreement as your attorney, I must sign a declaration that it doesn’t impose an undue hardship on you or your dependents. I won’t sign it if your budget doesn’t show you can afford the payments. I also won’t sign it if the interest rate is unreasonable or if the property is worth significantly less than what you owe.
If I won’t approve the agreement, it can be set for a hearing before the judge. I can help get it on the court’s calendar, but you’ll represent yourself at that hearing. The judge will explain the consequences of reaffirming, and most likely won’t approve the agreement either.
Once you’ve gone through this process, the creditor can’t repossess the property unless you’re in default on your contract, meaning you’re behind on the payments or don’t have insurance. Debtors who timely offer to reaffirm and aren’t in default may keep their cars, even if the court doesn’t approve the agreement.
Markwell Law, LLC
1600 Heritage Landing, Ste. 202B
St. Peters, MO 63303
Phone: 636-486-1093
Fax: 636-634-3462
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By: Guss Markwell
