Should You Reaffirm?

Most bankruptcy lawyers will tell you it is not a good idea to reaffirm a debt when you file for bankruptcy. There are advantages and disadvantages for reaffirming. Should you reaffirm?

For those of you not familiar with the term, a reaffirmation agreement in United States bankruptcy law refers to an agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be discharged in a pending bankruptcy proceeding.

There are reasons why some people think reaffirmation is a good idea. They think it will improve their credit scores and enable them to keep their assets that might otherwise be seized or foreclosed. Sometimes, the assets are automobiles the debtor needs for employment or a home they love.

Technically, the automatic stay of a bankruptcy will stop foreclosures and seizures made by creditors on secured loans. Creditors often put bankruptcy clauses in their loan contracts that state filing bankruptcy is a default of the loan, even though the debtor has made all the payments on time. So, many homeowners who want to keep an asset see affirmation as an advantage because the new agreement guarantees the company will not foreclose or seize the property after bankruptcy proceedings are finished, as long as the debtor continues to make timely payments on the asset.

Here are some reasons many bankruptcy lawyers think reaffirmation might be a disadvantage:

  • Reaffirmation does not improve your credit score. Bankruptcy has a negative impact on your credit and reaffirming does not change that, only timely and consistent payments.
  • Reaffirmation agreements are normally made in the favor of creditors. You have already filed a bankruptcy on a secured agreement, and the same creditor is not likely to take a “beating” on the second agreement just because you want to keep the asset.
  • Reaffirmation agreements are not required by law. Bankruptcy laws are for your protection and do not include reaffirmation agreements. As a matter of fact, you and your attorney have to sign a waiver to the bankruptcy court that the reaffirmation is in your best interest before the Court will allow it.
  • Assets which have a reaffirmation agreement cannot be discharged in bankruptcy. When you reaffirm an asset during bankruptcy proceedings, you are giving the creditor a waiver on bankruptcy discharge. That is why a lawyer has to sign-off when an agreement is made. Any default of the reaffirmation agreement will not be covered by your bankruptcy.
  • Reaffirmation agreements do not guarantee you will repay the loan. Bad things can happen to good people. If you waive your rights to discharge and you default on the new agreement, the creditor can sue you for the full amount of the loan. If sued, a judgment will generally be rendered in the creditor’s favor, allowing the creditor to go after any of your assets to satisfy the debt. You will no longer have the protection of the automatic stay of bankruptcy, and you will have to wait out the appropriate time frame before you can file bankruptcy protection again.

Whether you reaffirm or not, sometimes it is best to start over. You don’t have to reaffirm, so why would you tell your creditor that, despite your bankruptcy, you will pay them and give them the opportunity to sue you if something happens and you can’t pay them? When you sign a reaffirmation agreement, that is exactly what you are saying to your creditor.

If you need relief from the stress of debt and you live in or around the metropolitan areas of Albany, Schenectady, or Troy, New York, contact us at . We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.

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