Bankruptcy has the ability to discharge debts, and getting a discharge is a great way to take back control of personal finances. However, there are times when debt can be viewed as a good thing. For example a debt on a house can allow you to have a place to live, or a car debt may provides the means to drive to work. There are times when having a debt can be helpful, and for those time the Bankruptcy Court allows reaffirmation agreements.
Simply put, reaffirmation agreements are agreements to keep property and continue to pay for that property. Owning a home and paying the mortgage is an example of a time when a reaffirmation agreement may be appropriate for you to retain your home. A reaffirmation agreement allows for that loan to pass through the bankruptcy process without being discharged.
Reaffirmation agreements should be used with caution, however. Reaffirming a debt defeats the purpose of a bankruptcy for that creditor, and so the decision to reaffirm or not needs to be made with some care. Seeking legal advice when considering a reaffirmation agreement is always a wise move. Before entering into a reaffirmation agreement, there are a few things to consider.
First, can you make the payments. Bankruptcy is designed to give the honest debtor a fresh start. Reaffirming a debt that you cannot afford is fastest way to get back into debt. Affordability is the most important thing to consider when reaffirming a loan.
Second, are you underwater on the property. If you owe more on the property than it is worth, you may not want to reaffirm that debt. You would never intentionally pay more for something than it was worth, right? Reaffirming on property that is underwater is doing just that. There are a number of ways to determine the value of real and personal property. Take the time to find out the value of your own property before considering to reaffirm on the debt.
Finally, is the property necessary. Often, this is what determines whether or not people reaffirm on a debt. You have to have a place to live, so they reaffirm on their house; you have to be able to get to work, so they reaffirm on their car. Sometimes, this may be the best solution, however, there are lots of options when it comes to bankruptcy. Always discuss reaffirmation agreement alternatives with an attorney before making a decision that could put you right back in debt.
By Addam Fera, W M Law Attorney