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What is a Reaffirmation Agreement?

    reaffirmation-agreement20164Should I Sign a Reaffirmation Agreement?

    A reaffirmation agreement is something that is often used by lenders and debtors to satisfy debts outside of the reach of the normal discharges of a bankruptcy court. This is the device that may be used in the event, for example, if you want to keep a car and the lender is willing to allow you to continue to make payments. However, it is important to note that a reaffirmation agreement is purely voluntary and is not forced upon anybody by the courts. Because this is a voluntary choice made between you as the borrower and the lender, it is important that you have legal advice.  We can look at all the nuances of this agreement and decide if this reaffirmation agreement is truly in your best interest.

    Can you afford the payments?

    One of the factors that you must look at when you are signing a reaffirmation agreement is your ability to continue paying on the debt while you are going through a bankruptcy settlement and may have other obligations which will be forced on you by the court. At this junction, it is important that we are involved as your lawyer so that you understand all the ramifications, both financial and legal.  This way, you can get what you need without having to face consequences down the road. While it is certainly true that a reaffirmation is a great tool, the process must be completed carefully.

    What Happens When I Sign a Reaffirmation Agreement?

    When you file the form 248A, also known as a reaffirmation agreement, you begin a new relationship between the creditor and yourself as the debtor.  This typically stands outside of the portion of the discharged debt wiped out by the bankruptcy courts. Because this agreement takes place within the context of your bankruptcy, there is an automatic setup for a hearing and you will receive a written notice of the hearing date and time. You must appear at the hearing and the judge will decide if it is in your best interests to reaffirm, based on your situation, based on the nature of the reaffirmation, and the arguments of your attorney, if in fact this reaffirmation is in your best interest. One of the things the courts are extremely sensitive about is allowing you to take on debt that could damage you further and they will not allow such a transaction like that to take place.

    As your bankruptcy attorney, it is important for us to tell you that the court does not need to approve a reaffirmation agreement.  Bankruptcies are designed typically to give you a second, and fresh new start. If the court finds that the debt is larger than what it is worth, the court may not allow you to reaffirm the debt. For example, if your vehicle is worth $10,000, the court will not allow you to reaffirm a debt of $15,000, knowing that this is not in your best interest.  Because of this, it is critical that you speak with your bankruptcy attorney and go to all of your options before you start negotiating for reaffirmation with any creditors.