A reaffirmation agreement is a voluntary agreement between a bankruptcy Debtor and their creditor that a specific debt will not be discharged, regardless of the bankruptcy case. Entering into a reaffirmation agreement is an exception to discharge under 11 USC 524(c), and governed under Bankruptcy Rule 4008. When a Debtor signs a reaffirmation agreement, they are agreeing that the creditor could sue them for that debt at a later date if the Debtor fails to live up to its obligations under the agreement.
Reaffirmation agreements are commonly offered by creditors when a debt is secured by a vehicle or a house. When it comes to a vehicle, although a creditor may send a reaffirmation agreement and request that you sign it, it is not often a requirement to sign the document in order to keep the property so long as you keep up with your payments. More often, it is in the creditor’s best interest for you to continue making regular on-time payments and allow you to simply keep the vehicle. It is similar with a house that you own. Keep making your payments on time, and commonly the creditor will not make an attempt to repossess that property.
That being said, some creditors take a hardline stance. As a condition for current and future possession and use of the vehicle, they may require that you sign a reaffirmation agreement. Whether a creditor will take this hardline stance or not is difficult to know until they actually send the reaffirmation agreement, unless your attorney has the experience to know what creditors will and won’t make reaffirmation a condition of you keeping that property.
Backing out of a reaffirmation agreement
The Debtor in a bankruptcy case that has entered into a reaffirmation agreement may find themselves with some buyer’s remorse, and want to back out of the agreement. This is possible, so long as it is done within a very specific time frame. The bankruptcy code allows a Debtor to revoke a reaffirmation agreement a) within sixty days after such agreement is filed with the court, or b) any time prior to discharge, whichever occurs later. Once the Debtor receives their discharge and it’s been more than 60 days since the reaffirmation agreement was filed, the Debtor no longer has the ability to revoke the reaffirmation agreement.
Conditions of a reaffirmation agreement
While it may sound simple enough that voluntarily agreeing to the reaffirmation agreement should be enough for it to be effective, the Debtor is also required to show that they are monetarily able to make payments on the vehicle. When the Debtor agrees to a reaffirmation agreement, they are required to show that their income minus ordinary living expenses, including the reaffirmation agreement, will result in the Debtor being able to maintain their living expenses. If the Debtor’s income minus living expenses with the reaffirmed debt is a negative number, the Court will not approve the agreement.
To sign or not to sign
Whether you sign a reaffirmation agreement is a decision with significant consequences. For example, if you sign a reaffirmation agreement and lose your job six months later, you may see a repossession of the reaffirmed property and then be sued for that debt. Whereas if you had not signed the reaffirmation agreement, the creditor could repossess the vehicle, but is stopped short from being able to collect the discharged debt against you through a lawsuit or collection efforts.
If the Debtor is behind on their vehicle payments, sometimes the Creditor will agree to allow the Debtor to catch up on payments in return for signing a reaffirmation agreement. This can be helpful if you’re behind on your car, but have the ability to catch up over a period of time.
Our office has not come across an unsecured debt, like a credit card or medical debt, that we would ever agree to sign a reaffirmation agreement on, and it is hard to imagine a situation where we would.
There is little to no evidence that shows a reaffirmation agreement will improve a debtor’s credit score. There are much better options to improve your credit over time, and many sources argue that reaffirming a vehicle debt is more detrimental to your credit than it is helpful.
In our experience, the vast majority of reaffirmation agreements that come through our office have more negatives than positives. Most often, the creditor is requesting that the Debtor agree to non-dischargeability of a debt, and in return the Debtor receives little to no benefit form signing such an agreement.
At Kootenai Bankruptcy, our experienced attorney can walk you through your specific circumstances to determine whether signing a reaffirmation agreement makes sense for you in a bankruptcy case. Call or text us today at (208) 719-0232 to meet about your bankruptcy case.