Reaffirmation Agreements

Reaffirmation Agreements
Some creditors may ask you to reaffirm or recommit to your debt with them so that they will get paid without regard to the discharge in your bankruptcy. This is seldom to your benefit. It is generally not wise to pay for a bankruptcy and then take on some of the old debt that you would not have had to pay under the bankruptcy.

If the creditor has security in your property, such as certain limited creditors like Sears, and virtually all car loans, then you may have to deal with them one way or another. With Sears, and other creditors who took purchase money security interests in the goods that they sold to you, there is a choice of returning what you have, paying the value of the goods they sold you that you still have in your possession, or reaffirming your debt with them and making payment arrangements.

With car loans, you may keep the vehicle if you make your payments on or before the due date of the loan. Without reaffirmation, should any post-discharge payment be late, the loan could be declared in default and under the terms of the contract the balance of the account may be accelerated. In the event of such a default, the lender will repossess the vehicle. Since you will have been discharged of the debt, the lender will not attempt to contact you prior to repossession.

If there is a default and/or the vehicle is repossessed, the lender will only accept the entire balance of the debt, including any repossession costs, before releasing the vehicle to you. Any partial payment received after default is generally returned.

Leases are not loans and they must be either (a) be accepted or rejected in a bankruptcy, through a special legal proceeding for which there is generally an additional fee, or (b) they must be reaffirmed. At the end of your bankruptcy, if your lease is not reaffirmed or accepted by a special proceeding, the creditor may take the vehicle or leased property at any time.

There are other situations in which signing a reaffirmation agreement may be beneficial. If you have any questions about the adviseability of signing a reaffirmation agreement, talk to an attorney.

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