What is a reaffirmation agreement?
A reaffirmation agreement is a contract between a creditor and a debtor, who has filed for bankruptcy protection, to keep certain debts out of the bankruptcy proceedings. If you have signed a reaffirmation agreement for certain debts the debts in question will not be discharged in the bankruptcy and you will be responsible for repaying the debts.
Filing Chapter 7 bankruptcy allows debtors to discharge certain types of debts. If you are considering signing a reaffirmation agreement it's important to first talk to a bankruptcy lawyer. The attorney will make sure you do not sign any reaffirmation agreements unless they are absolutely necessary.
When do debtors sign reaffirmation agreements?
If you file bankruptcy and you have secured loans, including car loans and mortgage loans, you may be required to sign a reaffirmation agreement if you would like to keep the property. A reaffirmation agreement is simply a contract which outlines the terms of repayment for the secured asset.
If you decide to sign a reaffirmation agreement the court can review the agreement at a reaffirmation hearing. If the creditor is not repaid for the loan, per the reaffirmation agreement, they have the legal right to repossess the property.
When can I sign a reaffirmation agreement?
If you have filed bankruptcy you have the legal right to reaffirm certain debts if your bankruptcy case is still pending, the debts have not be discharged, the agreement will not "impose an undue hardship," you have received proper legal counsel, and the agreement is considered voluntary. If these criteria have been met the court generally does hold a reaffirmation agreement and the agreement is automatically approved.
The court, however, may choose to hold a reaffirmation hearing if you do not have a lawyer and the court believes the agreement may create an undue hardship. The court will assume the reaffirmation agreement will be an undue hardship if your expenses are greater than your income. If this is the case, you will have to attend a hearing to explain to the court how you will be able to afford the payments and why you need to keep the property.
If you have hired a bankruptcy lawyer they are also required to sign the reaffirmation agreement. Consider, however, if they are not willing to sign the reaffirmation agreement a hearing will be scheduled to review the agreement.
What Happens at the Reaffirmation Hearing?
At the reaffirmation hearing you will be called to appear before a judge to present evidence that reaffirming the debt will not impose an undue hardship on you and that you understand the consequences of the agreement.
If the court approves of the agreement you will keep your property and will continue to make payments per the reaffirmation agreement. If the court does not believe you have the financial means to continue to make payments for the debts, they will disapprove of the reaffirmation agreement. If the debts are for secured assets the lender may decide to repossess the property, although under some conditions other arrangements with the lender can be made to keep the property.
Bankruptcy may stop foreclosure proceedings, end harassing debt collection efforts, and allow a homeowner to pay missed mortgage payments.