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Reaffirmation Agreements

by Dorota Trzeciecka on January 30th, 2010

What is reaffirmation?  “Reaffirmation is a voluntary agreement between you and a creditor, whereby a debt which is otherwise dischargeable in bankruptcy with respect to your personal liability, is renegotiated or reaffirmed by both parties.”  The reaffirmation agreement must be filed and approved by the court.  You should not rush into reaffirming a loan — reaffirmation can have serious consequences. When the reaffirmation is approved by the court, you remain personally liable for that debt from then on.  This means that if you default on your car payments, you will not only have your car repossessed, but the creditor can sue you and get a judgment against you personally.   Help from an experienced bankruptcy attorney is a must when you are trying to decide whether or not to reaffirm a debt.  Reaffirmation applies to other secured debts as well, that is debts that are secured by collateral, like a boat, a mobile home, or even your personal residence.  (For a definition of secured and unsecured debt, please see the post by David Harris, http://davidharrisbankruptcylaw.com/what-is-the-difference-between-a-secured-debt-and-an-unsecured-debt/).

The approval of the affirmation agreement by the court is not a sure thing.  There may be times where you may want to reaffirm the car loan because you desperately need the car to go to work or to take your kids to school, but the court may not let you reaffirm.  If the court determines that keeping the car loan is not in your best interest and will impose undue hardship on you or your dependents, the court may not reaffirm.  When you think about it, receiving a negative ruling from the court on the Motion for Approval of Reaffirmation Agreement  is not necessarily a bad thing.  What it means is that the debt will be discharged in bankruptcy — that is, you will not be personally responsible for paying that debt once the discharge order is entered.  Admittedly, there are a few creditors that will come and repossess the car once you receive the discharge, even if you are current on your car payments.  But, most creditors won’t.  If your car is worth less or close to the loan amount (and that is usually the case because of depreciation), it is unlikely that the creditor will come knocking on your door to repossess the car, especially if you are current on your payments.   What it also means is that, if you decide not to keep the car after the discharge , you can stop making payments any time.  The creditor may come to repossess the car,  but you will have no personal liability because the reaffirmation was not approved by the court, and you were personally discharged from the debt.

If you want to learn more about reaffirmation agreements, please contact me at (305) 439-0464, or e-mail me at dorota@debtor-creditorlaw.com.