What Is Reaffirmation in Bankruptcy?
When you file for bankruptcy, some or all of your debts are discharged, and you are no longer required to pay them back. Bankruptcy can provide you with an opportunity to start over financially. However, in some cases, you may want to reaffirm a particular debt. Reaffirming a debt means you agree to remain liable for it even after the bankruptcy case concludes. If you are considering filing for bankruptcy, it is important that you sit down with a qualified attorney who can help you understand reaffirmation. However, even before you speak to an attorney, read on for some basic information about reaffirmation.
What Is Reaffirmation?
Reaffirmation is when a debtor agrees to pay a debt even though they could have eliminated it in their bankruptcy case. Reaffirmation is often done for secured debts where a debtor wants to retain the collateral and is primarily utilized in Chapter 7 bankruptcy. For example, you may choose to reaffirm a mortgage to keep your home. Other loans people often decide to reaffirm include car loans, furniture or appliance loans, and loans for jewelry. After you reaffirm a debt, you continue making payments on the debt. In return, you get to keep the collateral.
Reaffirming a debt can have serious consequences in the future. If, for example, your situation changes in the future and you are unable to meet the reaffirmed debt’s payments, it could result in foreclosure or repossession, which could impact your financial stability. Therefore, it is crucial that before entering a reaffirmation agreement, you take time to consider all your options. A skilled attorney can help you understand all your options and ensure you make the right decision.
Reaffirmation Is Voluntary
It is vital to note that reaffirmation in bankruptcy is voluntary. You are not obligated to reaffirm any debt. It is entirely up to you as the debtor to decide whether you want to continue being legally responsible for certain debts after bankruptcy or opt for them to be discharged. Reaffirmation requires you and the creditor to agree and enter a new contract to reaffirm a debt, which the bankruptcy court must approve.
A Reaffirmation Agreement reimposes your personal liability on a debt. If you enter into a Reaffirmation Agreement, and there is a deficiency after a creditor repossess the collateral due to a default in your monthly payments, then you may be personally liable to the creditor to pay the difference.
Even if you do not enter a reaffirmation agreement, the secured debt remains attached to the collateral. Many secured creditors are willing to accept your monthly payments to keep the collateral until the debt is paid in full. This also gives you the freedom to walk away from the collateral, such as if your car breaks down post-bankruptcy, and avoid a personal deficiency claim against you.
If you choose to reaffirm a debt and the court finds that there might be some questions about whether the reaffirmation is in your best interest or you don’t have an attorney representing you with regard to the reaffirmation, the court might set a reaffirmation hearing. During the reaffirmation hearing, the bankruptcy judge will review the terms of the reaffirmation agreement. The judge will assess your financial situation to ensure you can continue making payments. The bankruptcy judge will also determine whether the reaffirmation is in your best interest. The judge can reject your reaffirmation agreement if they find that it is not in your best interest or could impose undue hardship on you.
The reaffirmation hearing is meant to ensure debtors don’t make harmful financial decisions. This hearing aims to ensure you fully understand the implications of reaffirming a debt.
Schedule a Consultation With a Lehighton & Carbon County Bankruptcy Attorney
If you are considering bankruptcy and need legal guidance, contact our qualified Lehighton & Carbon County bankruptcy attorney at Adam R. Weaver, Esq.