Reaffirmation agreements in Bankruptcy

Reaffirmation agreements in Bankruptcy can be confusing, scary, and dangerous if you aren’t properly educated about them.

Here’s my primer:  A reaffirmation agreement is an agreement made between a Chapter 7 debtor and his or her secured creditor.  The agreement essentially re pledges debt that would otherwise be discharged by the Chapter 7 discharge.  In exchange for re-pledging the debt, the debtor gets to keep the collateral in which the secured creditor has an interest.   The most important thing to understand is that re-pledging means that a debtor is on the hook for the debt post discharge.  If a debtor defaults, he or she will again be liable for the debt, plus interest.

We do not sign reaffirmation agreements in Chapter 13 cases.  We do not sign reaffirmation agreements for unsecured debt.  We do not sign reaffirmation agreements for real property.  I’ll explain the ‘why’ for these statements when we meet.

The most common creditors who seek reaffirmation agreements are car lenders, jewelry stores, and electronics/appliance stores where the store card is secured by the collateral purchased using that card.

Before the bankruptcy code was reformed in 2005, it was common for Chapter 7 debtors to “ride through” bankruptcy without signing reaffirmation agreements. Debtors kept paying post filing, creditors kept accepting the money, and both sides existed somewhat peacefully.

Post-reform, bankruptcy courts sent out a clear message: Chapter 7 debtors may not “ride through.”  Once a creditor proves that it has a secured interest in collateral that a debtor wants to keep, the debtor must follow one of the three prescribed paths–reaffirmation, redemption, or surrender.

When we meet I will explain these choices to you.    Reaffirmation agreements are not typically executed until after we go to court for our Meeting of the Creditors.  You’ll have time to think about your options, and I will prepare you to make the best choice for your situation.