Reaffirmation and Bankruptcy

: Reese Baker & Associates

  Filed under: bankruptcy

During the bankruptcy process, your creditors may ask you to make a reaffirmation agreement. A reaffirmation agreement states that you will be legally obligated on some or all of a debt that you could otherwise eliminate in bankruptcy. By signing a reaffirmation agreement, you are giving back the creditor the right to collect a debt from you.

Understandably, you should be cautious of signing such an agreement. You should never agree to reaffirm a debt if:

  • The debt is unsecured
  • The debt is secured, and you are current on your payments
  • The debt is secured, but you have no interest in keeping the collateral
  • The creditor cannot prove that the debt is secured
  • You are so far behind in your debt, and it is likely that the property will be repossessed anyways

If, however, the creditor gives you something in return for signing the agreement, you may want to consider reaffirming with the creditor. Other reasons might be:

  • You can comfortably afford the payments after the bankruptcy
  • The creditor lets you catch up on default payments in a manageable way
  • You want to keep the property, and the bankruptcy court insists you sign the agreement to keep the collateral

Credit Card Debt

Some offers by credit card companies may appear attractive, such as extending your credit if you reaffirm the debt. The agreement also may lower your monthly payments. On the surface, these seem like a good deal, when in fact, you may end up paying on these cards for years when the debt could have been eliminated in bankruptcy. 

Saying No

You have the right to refuse to sign a reaffirmation agreement. You also have the right to renegotiate the terms of the agreement. Just because a creditor offers you new credit, it is often better to eliminate the debt and obtain new credit in the future. 

Canceling a Reaffirmation

You have 60 days after you sign a reaffirmation agreement to cancel with the court. You do not have to give a reason, but you must notify the creditor in writing that you are canceling the agreement. The creditor must return any payment you made toward the agreement. 

If you have questions about bankruptcy and if it can offer you financial relief, contact a Hidalgo County bankruptcy attorney