By Ryan C. Wood
What should you do if a creditor wants you to enter into a reaffirmation agreement? The first question is what does it mean to reaffirm a debt?
What is Reaffirming a Debt?
The whole point in filing for bankruptcy is usually to obtain a discharge of your debts. Reaffirming a debt, whether secured or unsecured, is making that debt your personal obligation still even though you received a discharge of your debts in the bankruptcy. The reaffirmation agreement is a new signed writing obligating you to have to pay the debt still. If you fail to pay the reaffirmed debt the creditor will be able to enforce the debt against you. Basically you will be liable for the debt after the bankruptcy case is complete.
What Debts are Reaffirmed?
The most common debt that is reaffirmed is car loans. The 2005 Bankruptcy Reform Act changed the way vehicle loans are treated when filing bankruptcy. Your bankruptcy attorney should explain that you technically are not allowed to just keep making your vehicle loan payment and keep the car just like before you filed for bankruptcy. You must either surrender, redeem or reaffirm the vehicle loan and let your creditors know which in the statement of intention filed with your bankruptcy petition. In reality most vehicle loan companies will let you continue to make the vehicle loan payments without reaffirming the debt. If you do choose to reaffirm the debt a reaffirmation agreement will be filled out and signed. The reaffirmation agreement is filed with the court and depending upon the circumstances a determination as to whether reaffirming the debt is an undue hardship will be determined. If your expenses are more than your income it is assumed reaffirming the debt is an undue hardship. Most bankruptcy lawyers do not sign reaffirmation agreements. It is up to the bankruptcy filer to determine if reaffirming the debt is in their best interests. A hearing may have to be held to allow the judge assigned to your case to ask you questions about your income and expenses to determine if reaffirming the debt is in your best interests.
What are the Impacts of Not Reaffirming a Debt?
One of the impacts or negatives of not reaffirming a debt is that the loan company will most likely not report to the credit bureaus that you are current on the loan and making regular payments to help rebuild your credit. A vehicle loan company has in their discretion whether they will report to the credit bureaus. The positive is if you cannot continue to make the vehicle loan payments in the future you will not be liable for the loan if you have to turn in the vehicle. It is an added protection just in case you run into additional financial problems after your bankruptcy case is complete.
