What Is a Bankruptcy Reaffirmation Agreement?
After a debtor’s Chapter 7 bankruptcy case is completed, most of their debts will be discharged. That means the debtor will not be required to make payments and the creditor cannot take action to collect on unpaid loan balances.
Reaffirming Debt to Keep Property
In cases where the debtor had a secured loan – where property, such as a car, is used as collateral – the creditor may be able to take the secured property and sell it to recover funds for the remaining loan balance. To prevent the creditor from enforcing the lien after a bankruptcy, the debtor would need to enter into a reaffirmation agreement.
The agreement is a contract between the debtor and creditor in which the debtor agrees to make payments on a specific loan so they may keep the property. Essentially, the loan will not be discharged with the other debt covered in the bankruptcy.
Filing a Request During Bankruptcy Proceedings
To enter into a reaffirmation agreement, the debtor or creditor must submit a request during the bankruptcy case. Because the agreement allows a debtor to keep a loan even as they are filing to have other debts discharged, a judge must review the request to ensure the debtor can feasibly manage the loan and it won’t create an undue financial hardship.
If the debtor does not have an attorney, they will need to attend a reaffirmation hearing to argue their case. However, if they do have a lawyer, they must provide a signed agreement stating that the loan will not put a strain on their finances. Ultimately, the judge will decide whether or not to approve the request.
Advantages and Disadvantages of Reaffirming Debt
The benefit of entering into a reaffirmation agreement is that the debtor will be able to keep the property as long as they continue to make payments.
However, when an individual reaffirms a debt, they are contractually obligated to make payments on that loan until it is paid off. If they fail to do so, the creditor can repossess the property and pursue a lawsuit against the debtor for the remaining loan balance.
Contact Albaugh Law Firm for a Free Case Evaluation
If you are struggling to stay on top of your loan payments, our attorneys at Albaugh Law Firm help you understand your debt defense options. We will discuss your situation with you to find a solution that meets your needs and helps you get a fresh start.