A Reaffirmation of a Debt requires entering into an Agreement with a Creditor which allows that Creditor’s debt to survive the Chapter 7 discharge. Reaffirmation Agreements are made in Chapter 7 Bankruptcy only. A Reaffirmation Agreement must be signed by both the Debtor and the Creditor. Reaffirmation is entering into an Agreement with a Creditor to all their debt to survive the Chapter 7 discharge. In order to reaffirm a debt various disclosures pertaining to Reaffirmation and a cover page must be filed with the Court prior to the entry of discharge in your Chapter 7 case. The Court must approve the Agreement.
Typically you must show the Court that you can afford to pay the debt. You cannot reaffirm a debt if your budget shows you cannot afford the debt, unless you can show the Court that you have another source of income after the filing of the bankruptcy, which will allow you to pay that debt.
Most people choose to reaffirm debts which are secured by property they intend to retain such as a mortgage on a home or a car loan. Reaffirming car loans carries a greater risk. In the event that after you have reaffirmed a debt and find you cannot retain a vehicle, upon surrendering the vehicle, it is most common that the vehicle is sold for an amount far less than the amount of the debt. If you have gone through Chapter 7 and reaffirmed that debt you will owe the balance due on the loan. It is preferable to avoid this risk. There are circumstances where if you do not reaffirm a car loan the auto lender can insist on repossessing that vehicle after the bankruptcy stay is lifted.
Please address any questions you may have about Reaffirmation to Counsel before entering into a Reaffirmation Agreement.