1. What is a Reaffirmation Agreement?

When you file a Chapter 7 bankruptcy, some or all of your debts are discharged and you are no longer legally responsible for paying them back. This gives you a “fresh start.”

A reaffirmation agreement is where you agree to pay a debt even though you could have eliminated the debt in your bankruptcy case. When you reaffirm a debt, you continue to be legally responsible for paying it back. You’re basically agreeing to voluntarily go back on the hook for that debt.

This gives the creditor some legal rights. For example, if you have a car loan and miss a payment in the future, the creditor can:

(1) Repossess the car; and
(2) Sue you for the money you owe (deficiency balance).

When you reaffirm a debt, it’s like you never filed for bankruptcy on that debt. This can have serious financial consequences on your future. Therefore, it is wise to consider all of your options before entering into a reaffirmation agreement.

2. Should You Reaffirm a Debt?

a. Voluntary Reaffirmation

In many cases, you do not need to reaffirm a debt. This will give you the full benefit of a “fresh start” by eliminating your debt. However, you may have special reasons for paying back a particular debt. If this is the case, you may be able to pay it back on a voluntary basis, without signing a reaffirmation agreement. It is a good idea to talk to us to find out what is best for you.

b. Mandatory Reaffirmation

Sometimes, a reaffirmation agreement can be mandatory. For example, if you own secured property, such as a car, you must tell the court what you intend to do with it. You have three options:

(1) Keep the car and continue making payments until it’s paid off (”Reaffirmation”);
(2) Keep the car by paying it off in a lump-sum payment, maybe even for less than you owe (”Redemption”); or
(3) Return the car to the creditor and owe nothing more (”Surrender”).

If you can afford to keep the secured property and continue making payments, you are supposed to sign a reaffirmation agreement, unless the creditor agrees otherwise. If you decide that you cannot afford to keep the property, you must return it to the creditor. If you decide to return it, the debt will clear later on with your bankruptcy discharge.

c. 45 days to Comply

After you file for bankruptcy, you will receive an appointment to see the bankruptcy trustee. This is called the 341(a) hearing or “meeting of the creditors.” After that meeting, you have 45 days to sign any reaffirmation agreements or return the secured property to the creditor.

3. Reaffirmation Hearing

If you do not have an attorney, the bankruptcy judge must approve your reaffirmation agreement. You will receive a hearing date to see a judge and explain why you want to reaffirm the debt. You must also explain how you can afford to make payments in the future. The judge will decide whether or not to approve your reaffirmation agreement.

4. Making Payments

While your bankruptcy case is pending, you must continue making payments to avoid losing your secured property. Your creditor may have stopped sending you the monthly bill after you filed for bankruptcy. If so, contact the creditor immediately to get the correct payment information, including the address and payment date. If you do not hear back from the creditor, it is still your responsibility to send payments on time.

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When you’re ready to get out from under the crushing debt load and begin a new debt-free life, contact Dallas bankruptcy lawyer Rustin Polk by clicking here. Tell our Appointments Coordinator, Cindy, that you are a website reader and she will set you up with a free, no obligation appointment to learn how we can help you.