What is a Reaffirmation Agreement in a Chapter 7 Bankruptcy?
When a person files a Chapter 7 bankruptcy, the petition breaks all contracts the debtor had previously. A Reaffirmation Agreement is an agreement that Chapter 7 debtors may sign to reassume personal liability for secured debt and keep the collateral. A Chapter 7 debtor can reaffirm debt for their car, boat, RV, real estate, or other high-value personal property. Signing and filing a reaffirmation agreement pursuant to 11 U.S.C. 524(k) re-creates the contractual relationship between creditor and debtor. Usually, the debtor must be current on the loan. In many cases, it may not be worth it to reaffirm a debt unless the creditor offers you some benefit such as a lower interest rate.
What Does Reaffirm Mean?
Normally, a Chapter 7 debtor is discharged of debt. A secured lender can repossess a car or boat or other property (called “the collateral”) if the Debtor is behind on payments. Secured lenders want the Debtor to sign and file a reaffirmation agreement to properly perfect their secured and unsecured interest in the collateral again. If the Debtor falls behind on payments, the creditor can repossess the collateral and sue the Debtor on any deficiency owed. If the Debtor never reaffirms the debt, the secured creditor can only recover the collateral and not the money owed on the contract.
The Voluntary Requirement of Reaffirmation Agreements
A secured creditor cannot force you to sign a reaffirmation agreement. The process is required to be voluntary (pursuant to 11 U.S.C. 524(k)(5)). Many creditors want the reaffirmation agreement to be signed and filed with the bankruptcy court to protect their secured status of the collateral and to potential collect the unsecured amounts if the Debtor defaults on payment to the creditor. Always stay current on any secured collateral you intend on keeping. If the creditor continues to take the payments, they cannot repossess the collateral without risking a wrongful repossession.
How Long Do You Have to File a Reaffirmation Agreement?
A Reaffirmation Agreement must be filed within 60 days after the first scheduled 341(a) Meeting of Creditors. This deadline may be extended by the Bankruptcy Court.
What Happens When You Reaffirm a Debt?
Once a Chapter 7 debtor executes a Reaffirmation Agreement, the lender or the debtor’s attorney files it with the Bankruptcy Court for court approval. The proposed budgets under Schedule I & Schedule J must show the Debtor can afford the payment.