One of the most common issues that comes up in Bankruptcy cases, primarily Chapter 7 cases, is “reaffirmation.”  It is also sometimes one of the most confusing issues.  Simply stated, a Reaffirmation Agreement is an agreement between a debtor in a Bankruptcy case and one of their creditors whereby the debtor agrees to repay a debt that would otherwise be discharged.  A reaffirmation is completely voluntary for both parties (i.e., both have to agree), and must be filed with the court.  Because a discharge of all or some of one’s debts is usually the most important benefit of Bankruptcy, reaffirmation agreements should be carefully considered before they are signed.  If you reaffirm a debt and later default, all of your Bankruptcy protection and benefits will be lost and the creditor can file suit, garnish wages and accounts, and take any collateral as if the Bankruptcy case had never been filed.  Although it is the client’s choice, because reaffirmations defeat the purpose of Bankruptcy to some extent, Bankruptcy lawyers very infrequently recommend reaffirming debts.  In addition, Bankruptcy law includes strict procedures and protections for debtors who want to reaffirm debts.  The overwhelming majority of reaffirmation agreements are for home loans or vehicle loans.

A few other basics about reaffirmation agreements:

  • Reaffirmation agreements must be filed no later than 60 days after the first date set for the first meeting of creditors.  This is a strict deadline.
  • The agreement may be rescinded by giving notice to the creditor within 60 days of the filing of the agreement or the date of discharge, whichever is later.
  • If the debtor does not have a lawyer in the case, the debtor will have to appear at a hearing and get Court approval of the agreement (usually after a warning or lecture from the Judge).  Many Judges will not approve an agreement unless there is a benefit offered by the secured creditor, such as a reduction in principle or interest.
  • If the debtor has a lawyer, the lawyer generally has to sign a declaration that the client was fully informed, the agreement was voluntary and it does not impose an “undue hardship.”  Good lawyers who have the client’s best interests in mind will not sign this statement unless it is true (and in the majority of Chapter 7 cases it probably would not be true for large debts).  Some courts will allow the debtor to proceed with approval without their lawyer’s support, although if there is a valid reason the lawyer believes it would be undue hardship the Judge will probably reach the same result.

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