In Chapter 7 cases, our clients have the option to reaffirm on certain debts. What does that mean and why would someone enter into a reaffirmation agreement.
The good news: Reaffirmation agreements allow debtors to keep making payments on debts like car loans, mortgages, and furniture loans after their bankruptcies are filed. But not only do the agreements allow for payments, they also allow for creditors to reflect the payments made on your credit report. Most reaffirmation agreements keep the payments the same as the original contract, although some may allow for changed payments if the creditor agrees.
Also, in the unlikely event something happens immediately after entering the agreement, you do have a period for “rescission” or undoing the agreement.
The bad news: If you reaffirm a debt and fail to pay on time, the creditor can report you as delinquent on your credit report. They can also sue you to recover the property – a small claims, money judgment, replevin, or mortgage foreclosure action. If this happens, you may need to explore another bankruptcy or some other method of keeping the creditor away from your property and perhaps your wages or bank account.
Reaffirmation agreements are important to review and require either your bankruptcy attorney’s signature on the agreement or a hearing in front of a bankruptcy judge to make sure you understand the consequences and options with reaffirmations.
If you have questions about reaffirmations in bankruptcy, contact one of our experienced attorneys.
By W M Law Attorney, Ryan Blay