Reaffirming a debt in bankruptcy means that you are agreeing to be legally liable to pay the debt back after bankruptcy. To reaffirm a debt, you must sign a Reaffirmation Agreement and file it with the Bankruptcy Court during the course of your bankruptcy case.
Signing a Reaffirmation Agreement has a number of implications.
- If you choose to reaffirm a debt, then you lose the benefit of the bankruptcy as to that debt, and you will be legally obligated to pay the debt back despite bankruptcy.
- If you later fall behind on a reaffirmed debt, then the creditor can take collection action against you, including collection calls, filing a lawsuit against you, and then possibly having your wages garnished, or seizing the collateral if the debt was secured (such as repossessing a car for an unpaid car loan).
- When considering whether to reaffirm a debt, you must consider whether you can afford the monthly payments. If you later miss payments on a reaffirmed debt you will have to face the consequences.
- If you have doubt about whether you can afford the payments, do not reaffirm.
- Typically Debtors only reaffirm car loans. This is because if you want to ensure your vehicle will not be repossessed, the U.S. Bankruptcy Code requires you to reaffirm your loan during bankruptcy.
- It is never advisable to reaffirm an unsecured debt, like a credit card or medical debt. The creditor may ask you to reaffirm the debt, but you are under no obligation to do so.
- You do not have to reaffirm the same terms of the debt with the creditor. You can try to negotiate more favorable terms such as a lower debt amount, lower monthly payments, or a lower interest rate. Though, the lender may refuse to negotiate new terms.
- You have a limited time to change your mind after reaffirming a debt. You can cancel a Reaffirmation Agreement for up to sixty days after it is filed with the Court or anytime before your Discharge Order is granted by the Court.
A Reaffirmation Agreement is only valid when:
- It is in writing,
- Signed by your lawyer or approved by the Bankruptcy Judge assigned to your case, and
- Executed before your bankruptcy case is over.
You must demonstrate that you can afford the payments of any debt you want to reaffirm. Under the U.S. Bankruptcy Code, you must sign, date, and submit to the Bankruptcy Court a statement in support of a Reaffirmation Agreement, that consists of the following:
“I believe this reaffirmation agreement will not impose an undue hardship on my dependents or me. I can afford to make the payments on the reaffirmed debt because my monthly income (take-home pay plus any other income received) is $___, and my actual current monthly expenses including monthly payments on post-bankruptcy debt and other reaffirmation agreements total $___, leaving $___ to make the required payments on this reaffirmed debt. I understand that if my income less my monthly expenses does not leave enough to make the payments, this reaffirmation agreement is presumed to be an undue hardship on me and must be reviewed by the court. However, this presumption may be overcome if I explain to the satisfaction of the court how I can afford to make the payments here: ___.” 11. U.S. Code §524(k)(6)(A).
Discuss the repercussions of a Reaffirmation Agreement with your Bankruptcy Attorney before signing. We urge you to exercise caution before giving up your right to have a debt erased.
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