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What Is a Reaffirmation Agreement in Chapter 7?


When someone files for bankruptcy under Chapter 7, they aim to discharge most of their debts and get a fresh financial start. However, there are situations where a debtor may want to retain certain assets, such as a car or home, that are tied to secured loans. This is where a reaffirmation agreement comes into play.

If you want to learn more about reaffirmation agreements and how they work, keep reading below.

What Is a Reaffirmation Agreement?

A reaffirmation agreement is a legally binding document that a debtor enters into with a creditor during a Chapter 7 bankruptcy. Essentially, it’s an agreement where the debtor promises to repay a specific debt, even though that debt could be discharged through bankruptcy. In return, the creditor agrees not to repossess the collateral securing the loan, such as a car or home.

The primary purpose of a reaffirmation agreement is to allow debtors to keep certain secured assets. It can be especially beneficial if you want to maintain ownership of essential items like your car, which you need for commuting to work, or your home, where your family resides. However, by signing a reaffirmation agreement, you commit to paying off the debt as if the bankruptcy never happened.

How Does a Reaffirmation Agreement Work?

Once you file for Chapter 7 bankruptcy, you will list all your debts and assets. Secured creditors—those whose loans are backed by collateral—may approach you with a reaffirmation agreement.

Here’s a step-by-step guide to how it works:

  • Proposal: The creditor proposes a reaffirmation agreement, specifying the terms, including interest rates and monthly payments.
  • Consultation: You’ll discuss the agreement with your bankruptcy attorney to ensure you fully understand the implications.
  • Filing: If you decide to proceed, the agreement is filed with the bankruptcy court.
  • Court hearing: In some cases, the court may hold a hearing to determine whether the agreement is in your best interest, especially if you’re not represented by an attorney.
  • Approval: Once the court approves the agreement, it becomes legally binding.

It’s crucial to carefully review the terms to ensure you understand the risks of agreeing to such a contract.

What Are the Risks & Benefits of a Reaffirmation Agreement?

Before entering into a reaffirmation agreement, it’s important to consider the risks and benefits of doing so. You should always consult with an attorney to understand your specific legal situation, but the following is a brief breakdown that can be relevant to most situations.

Benefits of a Reaffirmation Agreement

  • Retain essential assets: One of the main benefits is that it allows you to keep crucial items like your car or home.
  • Credit rebuilding: Successfully adhering to a reaffirmation agreement can help you rebuild your credit score, as timely payments are reported to credit bureaus.
  • Negotiation opportunity: Sometimes, the creditor may be willing to renegotiate better terms, such as a lower interest rate or extended payment period.

Risks Posed by a Reaffirmation Agreement

  • Financial strain: Reaffirming a debt means you have to continue making payments, which can be challenging if your financial situation hasn’t significantly improved.
  • No discharge: The reaffirmed debt doesn’t get discharged in your bankruptcy, meaning you’re liable for it no matter what happens in the future.
  • Repossession risk: If you fail to make payments, the creditor can repossess the collateral, leaving you without the asset and still owing the deficiency balance.

Contact Us for Legal Assistance

Considering a reaffirmation agreement is a significant decision that can impact your financial future. It's advisable to consult with a knowledgeable bankruptcy attorney to weigh the pros and cons based on your unique situation.

At Arnold Law Group, APC, we are experienced in providing comprehensive legal services for Chapter 7 bankruptcy, including assistance with reaffirmation agreements. Our experienced attorneys are here to guide you through every step of the process, ensuring you make informed decisions that align with your financial goals.

Contact us today to request an initial consultation and let us help you navigate the complexities of bankruptcy law with confidence.

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