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What is a Reaffirmation Agreement?

January 22, 2010


A reaffirmation agreement is a new contract between a debtor in bankruptcy and a creditor in which the debtor agrees to continue personal liability on a secured loan and the creditor agrees to not repossess the property. Reaffirmation agreements are only available to Chapter 7 debtors and the agreement must be executed before the bankruptcy discharge is entered. The debtor can revoke the agreement with 60 days after the agreement is signed.

Reaffirmation agreements are typically used to continue payments on secured property the debtor wishes to retain, like a car or house. A debtor that reaffirms a debt is personally liable for any subsequent default on the loan, and can be sued by the lender and the property may be repossessed. This is a serious consideration since the debtor is not eligible for another Chapter 7 bankruptcy discharge for eight years, and is not eligible for a Chapter 13 discharge for 4 years.

The Bankruptcy Code requires that the agreement contain many disclosures concerning the contract terms. The debtor must also file a statement of current income and expenses. If the debtor’s income after expenses is not enough to pay the monthly loan, the court may decide to not approve the reaffirmation agreement. The debtor’s attorney must also certify to the bankruptcy court that the debtor was advised of the legal effect and consequences of the reaffirmation agreement, and that the reaffirmed debt will not create an undue hardship for the debtor or the debtor’s family.

Since reaffirmation agreements are new contracts, the parties are able to change the terms of the original agreement. This could mean a reduction of principal, interest, or a change in payment length in order to make the monthly payments more affordable to the debtor. While the reaffirmation process is a voluntary process, the creditor is generally not anxious to repossess the property, and the debtor usually has more leverage in bankruptcy to negotiate a better deal with the creditor.

If you are considering a bankruptcy and a secured car or house loan, discuss your individual situation with an experienced bankruptcy attorney. There are many options to retain property both during and after bankruptcy. Your bankruptcy attorney can help you select the best course of action.


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