Bankruptcy Reaffirmation Agreement

What is a bankruptcy reaffirmation agreement?

Reaffirmation Agreement

A reaffirmation agreement is an agreement between a debtor in a bankruptcy case and a creditor of that debtor. A reaffirmation agreement has the affect of binding the debtor to the reaffirmed obligations even after the entry of a bankruptcy discharge.  The bankruptcy information sheet offers an explanation for a reaffirmation agreement.  If a debtor does not enter into a reaffirmation agreement and the underlying debt is discharged in that debtor’s bankruptcy case, the creditor will have no recourse to the debtor personally if she later defaults on her obligation.  In the case of an automobile, a lender will still have its lien and be entitled to exercise its legal right to repossess the car but it will not have a right to demand further payments from the debtor.

Should I Sign a Reaffirmation Agreement?

Debtors often ask, should I sign a reaffirmation agreement?  The answer is, it depends.

In the case of a vehicle where the debtor is current on payments prior to the filing of a chapter 7 case, it often makes sense to simply retain the vehicle and continue to pay.  In other cases, the secured creditor may offer more favorable terms to entice the debtor into reaffirming the obligation.  A reduction in interest or principal might be sufficient incentive to enter into a reaffirmation agreement.

Will the Bankruptcy Court Approve a Reaffirmation Agreement?

Courts are required to review reaffirmation agreements when the presumption of undue hardship arises.  Despite the presence of the presumption of undue hardship, a bankruptcy court might still enter the reaffirmation order if a debtor can demonstrate good cause to enter the order.  For example, if a debtor has a good deal of equity in the collateral, if friends or family have committed to making contributions to the debtor for the payments, if the creditor has offered more favorable terms or if the remaining payments are few, a court might enter a order approving a reaffirmation agreement notwithstanding the presence of the presumption of undue hardship.

Debtors considering whether to reaffirm an obligation should consider the matter carefully after a thorough discussion of the matter with a Pittsburgh Bankruptcy Lawyer.

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