What is a reaffirmation agreement in bankruptcy? First, it is important to note that a reaffirmation agreement is a subject discussed in Chapter 7 Bankruptcy, not Chapter 13 Bankruptcy. There is no such thing as a reaffirmation agreement in Chapter 13 Bankruptcy. In Chapter 13 Bankruptcy, collateral on a loan is either surrendered, paid on the plan, or paid outside the plan, with language on the plan that binds both debtor and creditor.
Chapter 7 Bankruptcy works differently. In Chapter 7 Bankruptcy, a “reaffirmation agreement” is an agreement which essentially gives debtor’s liability back to the lender. Upon discharge, debtor’s liability on the underlying debt is discharged. If debtor signs a reaffirmation agreement, debtor is giving their liability back to lender.
As a general rule, the lawyers at LifeBack believe signing a reaffirmation agreement is a bad idea. For one thing, the idea of bankruptcy is to provide debtor with a fresh start. Giving your liability back to creditors impedes the objective of a fresh start.
Signing a reaffirmation agreement on an asset which can lose its value rapidly, like an automobile, is particularly concerning. Imagine giving your liability back on a 40k vehicle loan only to have the vehicle’s engine blow up 6 months later? Most debtors will not find being liable on a 40k loan with an asset worth 20k funny.
Now, one down side to not signing a reaffirmation agreement in Minneapolis is you will not receive credit for payments made on the loan on credit reports. Big deal. I would prefer not to be liable on a debt than get credit for payments on the debt.
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When the time is right, when you are ready, reach out to Minneapolis, Minnesota’s most kind and helpful bankruptcy law firm by going to www.lifebacklaw.com. You will be so thankful you did.
