What is a Reaffirmation Agreement and should I sign one?

When you file a Chapter 7 bankruptcy, you will have to notify your secured creditors (car loans, furniture loans, and mortgage companies) as to what you intend to do about the loan. For loans that are secured by personal property (a car or furniture), you have to indicate whether you intend to reaffirm the debt, redeem the property or surrender the property. I will address redemption in another post. A reaffirmation agreement is an agreement to repay the creditor according to the terms of the reaffirmation agreement. Some creditors will offer better terms to get you to reaffirm the debt. For instance, one furniture loan company will cut the interest rate on the loan in half and reduce the monthly payment also. If you sign the reaffirmation agreement and it is entered by the court, you are bound to pay the debt as if you had not included it in the bankruptcy. This means that if you default on the debt, the creditor can take you to court, get a judgment against you and garnish your wages or bank accounts. Some car companies take the position that if you do not reaffirm on the car loan, you have defaulted under the terms of the original loan and they can repossess the car even if you are current on your car payments.

You are not required to reaffirm on a mortgage loan since the collateral securing the loan (the house) is not personal property. It is not a good idea to reaffirm on a mortgage loan unless the creditor has offered you some type of loan modification to do the reaffirmation. 

If you are concerned about a decision to reaffirm, contact an attorney to discuss your options. Every situation is different, and an attorney can give you the best advice for your circumstances. Call us at (757) 276-6555!

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney