Reaffirmation Agreement

A Reaffirmation Agreement is a voluntary legal contract between a debtor and a creditor, typically entered into during a Chapter 7 bankruptcy proceeding. By signing this agreement, the debtor exercises their control, committing to maintaining liability for a specific debt even after the bankruptcy discharge, which would otherwise release them from personal liability for most debts.
Debtors may reaffirm a debt for various reasons, such as retaining possession of a secured asset like a vehicle or a home or maintaining a relationship with a creditor who provides essential services. However, it’s crucial to understand that upon debt reaffirmation, the debtor agrees to continue making payments according to the original or renegotiated terms of the loan, even after the bankruptcy discharge. This means that the debtor will still be liable for the debt, and if they default on payments, the creditor can take legal action to collect the debt.
A Reaffirmation Agreement must be filed with the bankruptcy court before the discharge is entered to be valid. The agreement must include clear disclosures about the debtor’s rights and obligations, ensuring they are fully informed and aware of their responsibilities. The debtor must also receive counseling from their attorney or a court-approved financial counselor regarding the consequences of reaffirmation.
Reaffirmation Agreements undergo a thorough review by judges to ensure they do not impose undue hardship on the debtor and are in the debtor’s best interest. ‘Undue hardship’ can include situations where the debtor’s income is insufficient to cover the reaffirmed debt, or where the debtor’s financial situation is likely to worsen in the future. This legal scrutiny is a crucial part of the process. If the court approves the agreement, the reaffirmed debt survives the bankruptcy discharge, and the creditor retains the right to collect the debt and make use of the collateral if the debtor makes any defaults on payments.