What is a Reaffirmation Agreement?

Mona D. Rigdon

In bankruptcy, a debtor loses any property that cannot be paid for as agreed upon or approved by the court under appropriate statutes. A reaffirmation agreement is a written contract between a creditor and a debtor that all parts of the debt or obligation remain in full force and effect despite bankruptcy status. In other words, a debtor who owes money that is secured by collateral of some sort may retain the property or real estate. The debtor must continue to make payments as agreed upon throughout the course of the bankruptcy proceedings and until complete satisfaction of all money or obligations owed has been accomplished.

A reaffirmation agreement may be settled in court.
A reaffirmation agreement may be settled in court.

Bankruptcy laws were passed in order to allow people who may have gotten into bad financial shape to start over with a clean slate. Unsecured debt is discharged, and secured debts are paid as the bankruptcy court orders. Many consumers who have gotten into more debt than they can reasonably expect to pay will file bankruptcy to get rid of high interest credit card debt or medical bills, or to avoid losing a house or vehicle in the foreclosure or repossession process.

A reaffirmation agreement must be voluntary on both sides.
A reaffirmation agreement must be voluntary on both sides.

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For this to happen, an agreement must be reached between the creditor and debtor. In some cases, especially when the debtor is not represented by an attorney, any reaffirmation agreements must be reviewed and approved by the judge of the bankruptcy court. The court will ask the debtor if they can afford to continue to pay the debt as agreed upon and if the property is necessary for daily living before allowing a debtor not advised by an attorney to enter into a reaffirmation agreement.

A reaffirmation agreement must be voluntary on both sides. Courts will not force either a debtor or a creditor to enter into any such agreement. Judges and trustees in the bankruptcy system usually encourage the debtor to carefully consider whether entering into a reaffirmation agreement is wise and fits within his or her plan of budget reorganization. Bankruptcy only be filed only once within a legislated number of years and only under certain circumstances, so debtors who enter into reaffirmation agreements without careful consideration can do more harm than good for their credit. They might end up losing their property anyway and without the benefit of bankruptcy to help them avoid judgments, liens or garnishments.

When a person or entity files bankruptcy, an automatic stay goes into effect. The automatic stay essentially stops all collection, foreclosure, repossession or other legal action under penalty of court fines and fees. When this happens, foreclosure sales are halted, vehicles or other repossessed properties are sometimes forced to be returned, collection calls and letters stop, and any lawsuits, divorces or other pending legal matters are stopped immediately and until the bankruptcy court lifts the stay for a particular action or ends the bankruptcy. Reaffirmation agreements often play a big role in saving this type of property or stopping these types of actions.

Attorneys advise debtors to carefully consider budgetary constraints before entering into reaffirmation agreements. Without reaffirmation agreements, the bankruptcy courts allow the creditors to take possession of the properties in order to recoup as much as possible through sale or auction. The bankruptcy court then applies the money recouped to the balance and discharges any remaining debt. A reaffirmation agreement will not offer absolute protection against foreclosure or repossession efforts. Should the debtor be unable to comply with an executed reaffirmation agreement, the creditor usually will be able to proceed with collection efforts, up to and including foreclosure or repossession.

A reaffirmation agreement is a written contract between a creditor.
A reaffirmation agreement is a written contract between a creditor.

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