Reaffirmation AgreementCredit Repair Definition
An agreement made by a debtor during bankruptcy to continue paying a specific dischargeable debt, often to keep collateral.
Definition
A reaffirmation agreement is a voluntary contract made between a debtor and a creditor during a Chapter 7 bankruptcy case. In this agreement, the debtor agrees to waive the bankruptcy discharge for a specific debt (that would otherwise be dischargeable) and continue to be legally obligated to pay it after the bankruptcy concludes. Debtors typically enter into reaffirmation agreements for secured debts, such as car loans or mortgages, when they want to keep the collateral securing the debt. By reaffirming, the debtor promises to keep making payments, and the creditor agrees not to repossess the collateral as long as payments are current. Reaffirmation agreements must be filed with and approved by the bankruptcy court to ensure they are voluntary and do not impose an undue hardship on the debtor.
Frequently Asked Questions
Why would someone reaffirm a debt in bankruptcy?
The most common reason is to keep property securing the debt, like a car or sometimes a house. Reaffirming may be required by the lender as a condition for the debtor retaining the collateral post-bankruptcy. It can also help rebuild credit if payments are made on time after bankruptcy, as the reaffirmed debt continues to be reported.
What are the risks of reaffirming a debt?
The main risk is that the debtor remains legally liable for the debt. If they default on payments *after* bankruptcy, the creditor can repossess the collateral *and* potentially sue the debtor for any deficiency balance, whereas without reaffirmation, the personal liability would have been discharged.
Is reaffirmation always necessary to keep collateral in Chapter 7?
Not always. Depending on the lender and state law, options like 'ride-through' (continuing payments without reaffirming, though less common now) or redemption (paying the creditor the current value of the collateral in a lump sum) might be available. Debtors should discuss options with their bankruptcy attorney.
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