Reaffirmation Agreements Explained

Reaffirmation Agreement

Signing New Loan Papers During Bankruptcy

You will need to decide if you want to sign new loan papers for your mortgage or car loan during your bankruptcy case.  These new loan papers are called “Reaffirmation Agreements.” You do not usually need to sign these new loan papers to keep your house or car. You only need to keep making the payments. You keep a financed house or car during bankruptcy first and foremost simply by continuing to make the payments. However, by signing new loan papers, your mortgage or car loan will also continue to report your credit in the future.     

Reaffirmation Agreements Must Be Completed DURING your Bankruptcy Case

Reaffirmation agreements (new loan papers completed during bankruptcy) must be completed and filed with the court BEFORE your bankruptcy comes to completion.  You usually cannot do your reaffirmation papers on a mortgage or car loan after the bankruptcy case closes.  Mortgage companies may state or pretend as if reaffirmation loan papers can be filed easily after the bankruptcy case closes, but this is usually completely impossible.  The court and bankruptcy judges simply do not allow them to be filed after the bankruptcy closes in most circumstances.

You are “Back on the Hook” for the Debt After Signing a Reaffirmation Agreement

Reaffirmation Agreement puts you back on the hook for a debt

Remember, bankruptcy always eliminates your personal liability for your debts.  That means you are “off the hook” for your debts!  This includes your personal guarantees (liability to pay) that you previously made on your house and car loan too!   You become personally liable again to pay back a secured debt (such as your house and car) if you a reaffirmation agreement is filed on your case.  If you sign the reaffirmation agreement, your creditor could come after you to collect PERSONALLY on the loan if the loan is later repossessed or foreclosed.  If you do not sign a reaffirmation agreement, you will not be in “personal” danger in the future on the same loan. This is why many people who keep a house and car do not seek a reaffirmation agreement on the item during their Chapter 7 case.   

You become personally liable to pay the entire debt back when you sign a reaffirmation agreement!  You may not want to sign a reaffirmation agreement if you have a very high balance or interest rate on your loan.  It may also be very unwise to sign a reaffirmation if the loan is in a negative equity situation (the value of the collateral is worth less than the loan balance).  

People Who Keep Items During Bankruptcy Do Not Always Sign Reaffirmation Agreements

You can usually keep your house or car whether or not you sign these new loan papers (reaffirm).  All you need to do is just keep making the payments.  It’s usually that simple.  Making your payments is the most important part of keeping your house or car during bankruptcy.  Remember, keep paying your payments even if your creditor cancels your auto-payments.  Keep paying them even if your creditor will not allow you to pay online.  Just pay the payments directly in person or by mail if necessary, each month.  

Many people never sign reaffirmation agreements who keep their houses or cars after bankruptcy.  This can many times put you into a superior position where you will never be personally liable for the debt.   Although not signing a reaffirmation agreement could be wise in many situations, your creditor will not report your payments to the credit bureau in such a situation.  You will not be building your credit thereafter even if you keep the item and continue to make payments.  This non-reporting of credit can also make it more difficult to refinance items in the future.    In extremely rare cases, the creditor may demand the return of the collateral or repossess the item if you do not execute a reaffirmation agreement during the bankruptcy (this is rare in current practice, however).

Don’t Sign a Reaffirmation Agreement if You are Not Keeping the Item

If you are NOT keeping an item (such as letting a house or car go back to the lender), just ignore any reaffirmation agreements offered to you.  You may still receive one from your attorney or creditor.  It is always important to ensure creditor communications still reach a debtor during a bankruptcy.  This is why you may still receive one even if you have decided NOT to keep an item.  However, never sign a reaffirmation agreement, of course, if you are not planning on keeping the item.

Reaffirmation Agreements Require Your Active Understanding and Participation

Creditors frequently do not automatically generate reaffirmation agreements.  Sometimes creditors may not even file a reaffirmation agreement even after you have signed and returned the agreement to them.  If you are dead-set that a reaffirmation agreement should be filed in your bankruptcy case for an item, you should always contact your bankruptcy office EARLY after the case is filed to check if (1) the creditor has generated a reaffirmation agreement.  Then, later (2) check if the reaffirmation you already signed was filed within your case.  You should also always follow the procedure or policies of your bankruptcy office to accomplish this task.  Your active participation will always be required!

Your bankruptcy office should always facilitate the execution of a reaffirmation, but your bankruptcy office cannot control all parts of the process completely.  There is action required on part of the creditor, debtors, and even the court in bankruptcy to complete a reaffirmation agreement.  It will be impossible for your attorney to effectuate all of this activity without your active participation and understanding.  Also, call your bankruptcy attorney whenever you have any questions about reaffirmations early during the bankruptcy case.        

You should contact your attorney no later than 30-45 days after the bankruptcy case is filed about reaffirmations.  Reaffirmation agreements can only be executed BEFORE the bankruptcy discharge is granted in your Chapter 7 case.  You should also contact the creditor if you are dead-set on getting a reaffirmation agreement on an item filed.   If you are dead-set on reaffirming, you should follow up with both your attorney and the creditor throughout the entire process until you are sure that the reaffirmation was FILED in your case while the case was still open.   A reaffirmation CANNOT be filed after your case is closed.   The current bankruptcy laws did not make a simple “checkbox” to complete reaffirming or any other form of instant procedure.  It requires your active participation and following of your attorney’s office procedure if you desire a reaffirmation agreement to be filed for an item on your case.  

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