Reaffirmation Agreements and Bankruptcy

There are a number of reasons people file for a Chapter 7 Bankruptcy. Most commonly, the debtor is unable to repay their debt and would like a fresh start. The goal in a chapter 7 is to obtain a discharge of debts. However, for certain types of debts, the bankruptcy code does allow the debtor the potential option to keep property and continue making payments. These types of property include both vehicles and houses. If a debtor wishes to keep property he/she has a few different options. The debtor may redeem or reaffirm the debt owed on the property.

Reaffirmation is an agreement to keep paying under the original terms of the contract. If a debtor chooses to reaffirm a debt, and that reaffirmation is ordered by the court, that debt is not discharged. The debtor will remain responsible for the entire amount owed. In the event that the debtor is unable to make payments and the property is repossessed or foreclosed the debtor could be vulnerable to collection, law suits, and garnishment efforts. Before deciding to reaffirm a particular debt the debtor should consider a few things. First, the debtor should make sure that this is a debt he or she can afford in the future. Discharge of other debts may make the debtor more able to afford payments. The debtor should also consider whether he or she wants to continue making the payments. Considerations may include whether the property is actually necessary and what the interest rate on the note is. If you are concerned about replacing a vehicle after filing for bankruptcy your attorney may be able to make some suggestions.

If you are represented by an attorney for your reaffirmation the reaffirmation is considered effective as soon as the agreement is filed with your signature, your attorney’s signature, and the creditor’s signature. If you are not represented by an attorney there will be a hearing on the reaffirmation agreement and a judge will determine if the reaffirmation is in your best interest. Judges often consider the interest rate, whether there is any equity in the property, the debtor’s ability to repay the debt, and whether the property is reasonably necessary.

If you do not wish to reaffirm your debt, or a judge does not approve your reaffirmation, you do still have some options. You can continue to pay the debt and it is not likely that the creditor will repossess or foreclose on the property. The creditor is required to honestly and accurately report to credit bureaus.

If you have questions about this, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney Today.