What is a Reaffirmation Agreement in Bankruptcy?

If you are thinking about filing for bankruptcy in Oak Park, especially Chapter 7 bankruptcy, you are most likely planning to have your debts discharged so that you can get a fresh start. Since most debts are going to be dischargeable, getting a fresh start is especially appealing for debtors who are struggling to make ends meet while paying on credit cards and other loans that have high interest rates. There may be some situations, however, in which debtors filing for consumer bankruptcy want to sign a reaffirmation agreement. What is a reaffirmation agreement, and why would a debtor want to agree to one?
Reaffirmation agreements can be useful in a number of situations. We will discuss them with you below.
What is a Reaffirmation Agreement?
A reaffirmation agreement is just what it sounds like - a contract through which a debtor reaffirms a particular debt even though he or she is filing for bankruptcy protection. For many different reasons, a debtor might not want to have a certain debt discharged even though it is eligible to be discharged as part of the bankruptcy proceeding. To be clear, when a consumer files for bankruptcy, there is nothing in bankruptcy law that requires the debtor to have all eligible debts discharged. If there is a debt that falls into this category—a debt that the individual who filed for bankruptcy does not want to discharge—then the debtor must sign a reaffirmation agreement.
Reaffirmation agreements fall under Rule 4008 of the Federal Rules of Bankruptcy Procedure. The Rules clarify that reaffirmation agreements have the following requirements:
  • Must be filed no later than 60 days after scheduled meeting of creditors;
  • Must include necessary documents, including required cover sheet; and
  • Must include a statement containing the debtor’s total income and expenses.
It is important to be clear that reaffirmation agreements are entirely voluntary. A debtor cannot be coerced by a creditor, a co-signer, or anyone else to enter into a reaffirmation agreement.
Why are Reaffirmation Agreements Used?
Why would a debtor want to reaffirm a debt? There are many different reasons, as we mentioned. Most commonly, reaffirmation agreements are used when a creditor has a security interest in property that is in the debtor’s possession, like a car. The debtor may have been making regular car payments even while struggling to repay other debts and decided to file for personal bankruptcy. However, the debtor needs the car to get to work and to engage in other activities. As such, she does not want to give up the car in the bankruptcy proceeding and instead wants to discharge all other eligible debts while continuing to make payments on the car loan. In order to do this, the debtor needs to enter into a reaffirmation agreement in which he or she reaffirms the debt owed and promises to pay a certain amount to the creditor.
Another common situation in which an individual will reaffirm a debt is when there is a co-signer. When you file for bankruptcy and have a debt that is eligible for discharge but you had a co-signer in order to obtain that loan (such as a parent or a sibling), simply discharging that debt in bankruptcy will not remove that co-signer’s obligation to repay. In order to protect a co-signer, a debtor who has filed for bankruptcy can reaffirm the debt so that the co-signer alone is not left to pay the debt.
Contact an Oak Park Bankruptcy Lawyer
Do you have questions about reaffirmation agreements in bankruptcy? An Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.
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