Bankruptcy and the Ride Through Agreement
The Reaffirmation Agreement
A lot is written on bankruptcy law about the reaffirmation agreement in a Chapter 7 bankruptcy. A reaffirmation agreement is a contract between the debtor and creditor where the debtor agrees to be responsible for the debt the contract entails as if the debtor never filed bankruptcy against that particular debt. If there is a default later on, the debtor can be sued by the creditor as if the debt never went through bankruptcy.
Reaffirmation agreements are normally made on secured assets. In effect, a reaffirmation agreement made with a creditor effectively voids any effects filing a bankruptcy has on the debt. That is why bankruptcy law allows only the bankruptcy court the privilege of deciding whether a reaffirmation agreement is right for a debtor.
Before a debtor is allowed to go into a reaffirmation agreement with a creditor, a bankruptcy judge has an legal obligation by bankruptcy law to assure from the facts presented that the reaffirmation agreement represents a voluntary act by the debtor and that the reaffirmed debt will not pose an undue hardship on the debtor or his dependents. The debtor’s lawyer has the same responsibility to the bankruptcy court concerning the law. The attorney must sign a document stating that (1) the reaffirmation agreement is a fully informed and voluntary agreement by the debtor; (2) the agreement does not impose an undue hardship on the debtor or his dependents; and (3) that the attorney fully advised the debtor as to the legal effect and consequences of the reaffirmation agreement and default under the agreement.
A reaffirmation agreement is serious business, and unless the bankruptcy court approves the agreement, it will remain void and null.
The Ride Through Agreement
A ride through agreement is a different kind of agreement in bankruptcy terms. The automatic stay of bankruptcy prevents secured lien holders from foreclosing on or repossessing assets during the bankruptcy unless they successfully petition the court to lift the stay.
Just because you have filed bankruptcy and kept your payments up on secured property does not necessarily mean your creditors will allow you to ride through the bankruptcy in possession of the property. Many of the contracts for secured loans include a bankruptcy clause. This clause states that if you file bankruptcy during the contract term, you are automatically in default whether or not you are up to date on your payments. As a result, many secured creditors will foreclose or repossess the assets when the automatic stay has been lifted even if the bankruptcy is still in process.
A ride through agreement is where you and your secured creditor agree to allow you to continue paying on the loan during the bankruptcy, and the creditor agrees not to foreclose or repossess the asset. You, therefore, ride through the bankruptcy as the in tact owner of your asset and will continue to own it as long as you make payments.
Some creditors will voluntarily allow ride through agreements where others will not. Because of these individual preferences, bankruptcy laws are continually being challenged when it comes to ride through agreements.