A “reaffirmation agreement” in bankruptcy refers to an agreement made between a bankruptcy debtor and his or her creditor that waives the discharge of a debt that would otherwise be discharged in the debtor’s bankruptcy proceeding. Reaffirmation agreements are usually executed for the purpose of keeping collateral that would otherwise be subject to repossession. They must in most cases be filed within sixty (60) days after the first date set for the meeting of creditors. Reaffirmation agreements are strictly voluntary.
Reaffirmation agreements essentially allow you to keep your property (the creditor’s loan collateral) even after the legal discharge of your debt in the bankruptcy. Under these agreements, debtors agree to “reaffirm” liability for the debts owed on the property they wish to keep. Reaffirmation agreements are essentially new contracts between the debtor and the lender.
Debtors like reaffirmation agreements because they get to keep their property; creditors like reaffirmation agreements because they continue (or begin) to get paid for the loan secured by the property. After all, repossessing (even in cases of voluntary surrender) and auctioning property is also time-consuming and expensive for creditors.
As an example, should you default on your car loan payments, your creditor will take steps to repossess the vehicle. For any number of reasons, you may want to retain the car. You therefore file for bankruptcy protection and execute a reaffirmation agreement with the vehicle loan lender. The new contract will allow you to keep the car as long as you promise to pay (or “reaffirm”) the remaining debt by the terms of the new agreement.
If you reaffirm a debt and fail to make the payments as agreed, however, the creditor could take action against you to recover any property that was given as security for the loan. Moreover, you will remain personally liable for any remaining debt once the repossessed property has been sold at auction. For this reason, it is important that you thoroughly discuss your options with your bankruptcy attorney before deciding to execute a reaffirmation agreement.