A reaffirmation agreement is an agreement between a debtor and a creditor in a Chapter 7bankruptcy case which allows a specific secured debt to survive the bankruptcy discharge. The reason a debtor may want to enter into this type of agreement is because they wish to keep collateral that is securing the debt. In Chapter 7 bankruptcy, debtors can discharge debt, but this may not remove the lien from their property. In cases in which a debt is secured by an asset that the debtor wishes to keep, they may reaffirm the debt, which will allow the contractual obligation to survive discharge, and as long as they continue to make payments to the creditor, they will get to retain the property.
Just because a debtor states in their bankruptcy petition that they wish to reaffirm a debt, doesn’t mean that it is reaffirmed. Reaffirmation isn’t a process that a debtor can implement unilaterally. The bankruptcy petition will state what the debtor’s intent is as to the property, but it is up to the debtor to request a reaffirmation agreement from the creditor, sign the completed document, and make sure that it gets filed with the Court. A debt is not reaffirmed until the Court has reviewed the agreement and has chosen not to oppose reaffirmation. Courts sometimes object to reaffirmation of a debt when the debtor clearly cannot afford to continue making payments based upon the schedules filed in the case that show the debtor’s income and budget. If the Court denies reaffirmation, the debt will be discharged and will not survive the bankruptcy. If this happens, the debtor can try to retain the property by continuing to make payments or they may simply surrender the property to the creditor.
Failing to file a reaffirmation agreement may be a good idea when the debt is a mortgage. Even though a reaffirmation agreement has not been signed, a mortgage lender will not be able to foreclose on a home if the homeowner continues to make payments. Not filing a reaffirmation for a mortgage gives the debtor the benefit of being able to walk away from the debt without paying a mortgage deficiency if they later find they cannot afford to pay their mortgage payments. In the case of auto loans and lenders, failing to file a reaffirmation agreement may result in the car being repossessed even though the debtor continues to make payments.
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