To understand what a reaffirmation agreement is in Chapter 7 Bankruptcy, you first must understand what the goal of a Chapter 7 Bankruptcy is. The goal of a Chapter 7 Bankruptcy is to obtain a Chapter 7 Bankruptcy discharge. A Chapter 7 Bankruptcy discharge absolves you of your personal liability for the underlying debt. Creditor must write the debt off and is not able to pursue debtor for the debt again.
A reaffirmation agreement is an agreement where you agree to give your liability back to the creditor. Why would you do this? I am not sure myself. I understand why vehicle and home lenders want you to give them back your personal liability but what happens if you say no?
With respect to your home, as long as you remain current on the payment, taxes, and insurance and comply with the terms of your mortgage, you cannot lose your home. The terms of your mortgage remain the same after the bankruptcy is over with.
Vehicle loans can be a bit trickier. In the vast majority of cases, as long as you remain current on your car payment, lender continues to accept the payment and you continue to possess the vehicle. There are some banks that take the position that failing to sign the reaffirmation agreements provides grounds for bank to repossess the vehicle. I have had this happen 3-4 times in over 20 years.
Many times, debtor has little choice but not to sign the agreement. Would you sign a reaffirmation agreement giving your liability back to the bank on a vehicle worth 5k and you owe 12k on the loan? Of course not, that would be insane. You are far better off financing a different vehicle after the bankruptcy is discharged.
CONCLUSION
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