Should I sign a Reaffirmation Agreement?
Before a Debtor can decide if they should sign a reaffirmation agreement, they need to know what it is. A reaffirmation agreement is a signed agreement between the Debtor and a Creditor. It is usually with a secured creditor such as a mortgage company or a car creditor. It is an agreement that the debt owe to that creditor will not be discharged in the bankruptcy and the Debtor agrees to continue to pay the amount owed. Reaffirmation agreements are only used in Chapter 7 cases because in a Chapter 13 you either surrender the property or continue paying on it for the 3-5 years you are in the bankruptcy.
When a Debtor filed a Chapter 7 he must also file a Statement of Intentions. This is a statement that lets secured creditors know what the Debtor intends to do with regards to the debt. If a Debtor decided he cannot afford the property he has the option of surrendering the property regardless of how much money he owes to the creditor. Obviously, in this situation the Debtor would not want to sign a reaffirmation agreement and allow and deficiency to be discharged in the bankruptcy.
Sometimes if a Debtor is behind on his payments the creditor will allow him to sign a reaffirmation agreement that will get him current so he can start fresh with the payments to the creditor. However, a Debtor should not rely on a creditor doing this because in most cases the creditor will require the Debtor to get current before his case is discharged.
A Debtor would want to sign a reaffirmation agreement when he wants to keep the property and plans on continuing to make the payments. Some car creditors will require a Debtor to either sign a reaffirmation agreement or they will repossess the car once the case is discharged. Even if the Debtor is current on the payments the bankruptcy law does allow a creditor to repossess the car because technically the debt was discharged in the bankruptcy and the Debtor is under no obligation to make payments to the car creditor.
Before signing a reaffirmation agreement you need to read all the paperwork, ask your attorney any questions you might have, and evaluate your financial situation to make sure you will be able to continue to make the payments once the bankruptcy is discharged.
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