Chapter 7 Bankruptcy: Reaffirming a Debt

A Chapter 7 bankruptcy allows you to walk away from your debt and get a fresh start. However, there are times where you may want to keep a debt; in particular, keeping a mortgage or car loan.Le Jour ni l'Heure 8824 : autoportrait épiphanique, Plieux, bibliothèque, mardi 8 janvier 2013, 22:55:50

When the bankruptcy is filed, all creditors are subject to an “automatic stay”. Essentially that is a security blanket that prevents your creditors from collecting against you, suing you, repossessing or foreclosing on property. Once the case is discharged, this “automatic stay” is lifted and the debt is erased through the bankruptcy.

This “automatic stay” also applies over your home and car which you may want to keep. In order to allow the creditors to officially collect your money and report to your credit bureau, they will want you to sign a reaffirmation agreement on the mortgage and/or car loan. The purpose of the reaffirmation agreement is to re-commit you to that debt, to make sure you cannot walk away if you fail to pay.

There are positives and negatives to signing a reaffirmation agreement and our Westchester bankruptcy attorneys will help you decide if these are in your best interest.

 Positive Aspects of Signing a Reaffirmation Agreement

The most important positive outcome of a reaffirmation agreement is that your creditor will report all payments made to your credit report. If you fail to sign, they will still take your monthly payments, but will not report to your credit bureau and will not assist in rebuilding your credit score.

Also, for mortgage lenders, if you do not have a signed reaffirmation agreement, they may decline offering you loan modifications or refinancing in the future.

Finally, and this is particularly with car creditors, signing a reaffirmation agreement will prevent any future repossessions of the vehicle. Many car creditors will threaten repossession if you do not sign their reaffirmation agreement.

Negative Aspects of Signing a Reaffirmation Agreement

Once a reaffirmation agreement is signed, that commits you to that debt regardless of your future circumstances. If, in the future, you are unable to continue to pay on a car or home, the bankruptcy discharge does not protect you; the creditor will be able to collect on any remaining balance because of the signed reaffirmation agreement. Should you not sign a reaffirmation agreement but continue to make payments, in the future when your income changes you can walk away free and clear of the debt – even 20 years from now.

The reaffirmation agreement will reinstate certain legal rights that were otherwise discharged in the bankruptcy filing. Ask yourself, if you were having problems before your case was filed on maintaining the payments, do you want to remain liable on it after discharge?

 100% Voluntary

Keep in mind that reaffirmation agreements are completely voluntary for both you and the creditor. No one can force you to sign the agreement. At the same time, there is no law that requires the creditor to forward a reaffirmation agreement to your attorney. While creditors will say “your attorney needs to handle the reaffirmation agreement”, it is the creditors responsibility to draft and forward to your attorney the agreement as they have the terms of your loan and are the ones that can offer any negotiations.

Please contact our Westchester Bankruptcy Attorneys today at (914) 864-2465 or (845) 628-4301 to discuss which option is right for you. Our Westchester bankruptcy lawyers will work with you to manage your debt and help you through your bankruptcy filing.


photo by: Renaud Camus