Filing for Chapter 7 bankruptcy? If you have secured property you want to keep—like a car or furniture—you might encounter a Reaffirmation Agreement. This guide breaks down the what, where, who, when, and how of these agreements to help you make an informed decision.
What Is a Reaffirmation Agreement?
A Reaffirmation Agreement is a new contract between you and a creditor, allowing you to keep secured property, like a vehicle or furniture, during and after your bankruptcy case.
- Key Points to Know:
- The agreement makes the debt enforceable after bankruptcy.
- If you sign and fail to pay, the creditor can take you to court, repossess the property, and hold you responsible for any remaining balance.
Where Does a Reaffirmation Agreement Come From?
Creditors with a security interest in your property, such as car lenders or credit unions, may request a Reaffirmation Agreement to protect their interests after bankruptcy.
- Common creditors sending Reaffirmation Agreements include:
- Car loan lenders.
- Nebraska Furniture Mart.
- Credit unions with secured loans.
Who Doesn’t Send a Reaffirmation Agreement?
- Unsecured creditors: They don’t hold any security interest and therefore don’t need these agreements.
- Mortgage companies: Industry standards discourage reaffirming mortgages. Judges rarely approve these agreements due to the financial risk involved.
When Should You Sign a Reaffirmation Agreement?
You should only sign a Reaffirmation Agreement if:
- You are confident you can repay the debt in full by making the monthly payments on time.
- You want to retain ownership of the secured property.
Important Considerations:
- Defaulting on the agreement makes you liable for the debt.
- For vehicles, creditors can repossess the car and hold you responsible for any deficiency after resale.
What Happens If You Don’t Sign a Reaffirmation Agreement?
Mortgages
- Keep making your payments. They will still be applied to your loan balance.
- Your payments won’t appear on your credit report, but you can self-report through credit agencies with documentation.
- Refinancing in the future might require finding a new lender.
Vehicles
- If you don’t sign, you can continue making payments.
- Caution: In some cases (e.g., Hall v. Ford Motor Credit Co.), creditors have repossessed vehicles despite timely payments when no agreement was signed. While rare, it’s a possibility to consider.
Process for Signing a Reaffirmation Agreement
- Creditor Drafts the Agreement: The creditor prepares the agreement and sends it to our office for review.
- Review and Sign: If you decide to sign, ensure you fully understand the terms and consequences.
- Filing with the Court: The agreement must be filed before your discharge is entered (typically 45 days after the 341 meeting).
- Possible Hearing: If your budget (Schedule J) shows a deficit, the court may require a hearing to confirm your ability to pay.
- Revocation: You can cancel the agreement within 60 days of filing or before your discharge, whichever is longer.
Key Takeaways
- Reaffirmation Agreements apply only to Chapter 7 cases.
- They create a new, enforceable contract for secured debts.
- Mortgages are not typically reaffirmed.
- Payments won’t appear on your credit report, but you can self-report.
- Future refinancing may require finding a new mortgage lender.
- Only sign if you’re confident you can pay the debt in full.
Final Thoughts: Make Informed Decisions
Reaffirmation Agreements can help you retain important property but come with serious long-term consequences. Ensure you understand the risks and benefits before signing.
Need help deciding whether to sign a Reaffirmation Agreement? Our experienced bankruptcy attorneys are here to guide you.
