In Chapter 7 Bankruptcy, what is a reaffirmation agreement?
A reaffirmation agreement is a document that is signed by you, the creditor, and either your attorney or the bankruptcy judge. If you enter into a reaffirmation agreement, the debt that you owe to that creditor will not be discharged in the bankruptcy. A reaffirmation agreement has very serious legal and financial ramifications and should not be entered into lightly. The court will impose a deadline, which is 60 days after your Meeting of Creditors, to file a reaffirmation agreement. If that deadline is missed, the court will not approve the reaffirmation agreement. If you enter into a reaffirmation agreement and then change your mind, you will have approximately 60 days to rescind the reaffirmation agreement.
If you owe money on your car, some finance companies will require that you enter into a reaffirmation agreement if you want to keep your vehicle. It is important that you discuss this issue with your bankruptcy attorney. If you enter into a reaffirmation agreement and then later default on the loan, the finance company will be permitted to repossess your car, sell it at an auction, and sue you for any deficiency.
Most mortgage companies will encourage you to enter into a reaffirmation agreement for your home. However, there is no requirement that you enter into a reaffirmation agreement. A reaffirmation agreement on your home is usually not necessary, provides little or no benefit to you, and can put your financial future in jeopardy. Some mortgage companies will treat you poorly if you refuse to enter into a reaffirmation agreement. For example, they may not send you monthly mortgage statements, they may not allow you to enter into a loan modification, and they may not report to the credit bureaus that you are making your mortgage payment. Most bankruptcy attorneys and bankruptcy judges will not approve of a reaffirmation agreement for a mortgage. As long as you continue to make your payments on your mortgage, you will be able to keep your home if you do not enter into a reaffirmation agreement. If you do enter into a reaffirmation agreement for a mortgage, and later default on the loan, you could be sued by your mortgage company for a deficiency following a foreclosure sale.
Please speak to your bankruptcy attorney for more information about whether or not you should consider entering into a reaffirmation agreement.