When most people file a petition for discharge of various financial obligations, they expect these debts to disappear when the bankruptcy proceeding is completed. Why, then, does the bankruptcy code contain a provision that allows debtors to reaffirm their debts when the proceeding is complete, perhaps even if a majority of debts may be discharged? This post will explain the nature of an agreement reaffirming a debt and why a debtor may wish to use this provision.
What does a reaffirmation agreement do?
A reaffirmation agreement is a contract between the debtor and a specific creditor in which the debtor agrees to repay all or a portion of a discharged debt. The proposed reaffirmation agreement must state the amount of the debt that is being reaffirmed, the proposed percentage rate, and details about possession of the collateral.
The reaffirmation agreement must be filed within 60 days after the first meeting of creditors. The agreement must be accepted by the creditor in question and by the bankruptcy judge. The debtor can rescind the proposed agreement within 60 days after it has been filed with the court.
The effect of the reaffirmation agreement
The reaffirmation agreement removes the debt in question from the list of debts discharged in the bankruptcy proceeding. The debtor is then required to repay the debt according to the terms stated in the reaffirmation agreement.
Why reaffirm a discharged debt?
If the debt is secured by collateral that the debtor must possess to earn an income, perhaps an automobile, the reaffirmation agreement allows the debtor to regain possession of the asset and use it as originally intended. In other words, a reaffirmation agreement allows the debtor to retain possession of an asset that would otherwise be returned to the creditor.
Conclusion
No one should sign and submit a reaffirmation agreement without consulting an experienced bankruptcy attorney. A knowledgeable attorney can explain the consequences of signing the agreement and submitting it to the court.