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  1. Bankruptcy Glossary
  2. Reaffirmation Agreement

What is a Reaffirmation Agreement?

Filing Chapter 7 Bankruptcy allows the debtor to discharge most of their debts and gives the debtor a "fresh start". Reaffirmation of the debt allows the debtor to keep paying the debt, which would generally have been dischargeable through the Chapter 7 Bankruptcy process, by liquidating the asset and keeping the collateral or the asset (car, motor home, boat or airplane).

The Bankruptcy Reform Act of 2005 allows a debtor who is filing for Chapter 7 Bankruptcy to complete a reaffirmation agreement before a Chapter 7 bankruptcy discharge is completed or the disclosure statements are received from the debtor's creditors. The Bankruptcy Court must approve all reaffirmation agreements and the debtor may cancel the reaffirmation agreement within 60 days of the signing. Reaffirmation agreements may not be allowed by the Bankruptcy Court if the court determines the debtor would be unable to meet the terms of the new debt payment agreement. Most bankruptcy lawyers argue a reaffirmation agreement should not be signed by the debtor unless the debtor is able to develop more favorable debt repayment options.

Signing the reaffirmation agreement is allowing the creditor to:

  • Creditors can legally repossess the car or asset if the debtor misses loan payments and does not make all the necessary payments outlined under the new contract.
  • Creditors can sell the repossessed car or asset to another buyer and sue the original debtor for the balance of the remaining loan.

If there are assets you would like to retain, it is important to talk to a bankruptcy lawyer. Under certain conditions you may be able to avoid signing a reaffirmation agreement and repay debt on a voluntary basis. All reaffirmation agreements must be signed and completed within 45 days from the date of the Creditor's Meeting.