What is a Reaffirmation Agreement?

Our Bankruptcy Attorney Explains What You Need to Know Before Entering a Reaffirmation Agreement

So, what is a reaffirmation agreement? In Chapter 7 bankruptcy, it is a contract between a debtor and a creditor in which the debtor agrees to pay a debt without the protection provided by bankruptcy. This agreement does not affect any other debts. However, the debtor is required to pay this particular creditor as though he or she never declared bankruptcy. There are many reasons why reaffirmation agreements in Chapter 7 bankruptcy are appealing. But, it is important to weigh the pros and cons of this arrangement.

You should never decide to enter a reaffirmation agreement alone. Always discuss the options with a qualified bankruptcy lawyer. Don’t let creditors pressure you into signing these agreements. Kevin D. Judd is a Washington DC bankruptcy lawyer with a wealth of experience helping individuals manage bankruptcy. He can help you decide when to enter into and when to avoid reaffirmation agreements.

When Should You Sign a Reaffirmation Agreement?

Signing a reaffirmation agreement in Chapter 7 bankruptcy is a complicated decision. Thus, you should always discuss the option with a qualified bankruptcy attorney before signing the contract. When considering a reaffirmation agreement, ask yourself the following questions:

  • Can you afford the asset you wish to keep?
  • Would you be financially better off keeping the item instead of purchasing a new one? (For example, it may be better to keep a reliable car that you have nearly finished paying off, and it may be better to allow a trustee to sell an unreliable or underused car.)

If you answer “yes” to either of these questions, only then should you consider entering a reaffirmation agreement. The next step is to discuss the possibility of a reaffirmation agreement with a licensed bankruptcy attorney to get help making informed legal decisions.

Pros and Cons of Reaffirmation Agreements

If you file for bankruptcy, you may seek reaffirmation agreements when you desire to keep specific secured debts. This is particularly useful, as this agreement allows you to continue using a vehicle. In addition, paying the debt updates your credit report.

However, the bankruptcy does not apply to that debt. Therefore, you must continue to pay for the asset without any assistance from the bankruptcy claim. Additionally, you cannot bankrupt or discharge this particular debt for six years following the reaffirmation agreement. The creditor may even take action to collect debt if you fail to make payments.

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