WHAT DOES IT MEAN TO REAFFIRM A DEBT? WHAT IS A REAFFIRMATION AGREEMENT?

Many clients who file Chapter 7 bankruptcy are faced with the decision of whether to enter into a reaffirmation agreement with a secured creditor, such as a car finance company or mortgage lender. So what exactly is a reaffirmation agreement and it is a requirement for Chapter 7 bankruptcy? A reaffirmation agreement is an agreement between a debtor in bankruptcy and their creditor that a debt will remain a personal legal obligation of the debtor after bankruptcy. This means that if a debtor enters into a reaffirmation agreement and defaults on the loan, that default may result in a lawsuit or judgment or the loss of property, even after the debtor receives a Chapter 7 discharge.

Debtors in bankruptcy are not required to reaffirm a debt and they are often allowed to keep secured property and maintain payments without having to sign a reaffirmation agreement. It should be noted, however, that although not signing a reaffirmation agreement discharges one's personal legal obligation for a debt, it does not eliminate the lien or security interest in one's property. For example, if one does not reaffirm their mortgage debt, this does not mean that the lender's security interest is eliminated. Therefore, if a debtor chooses not to reaffirm their mortgage loan and defaults on their mortgage payments after discharge, the mortgage lender can still foreclose on the property. Similarly, a debtor who does not reaffirm a car loan and defaults on payments after receiving a Chapter 7 discharge can still have their vehicle repossessed even though he or she cannot be sued for any potential auto loan deficiency balance. Determining whether to reaffirm a debt is a serious decision that often requires the counsel of an experienced bankruptcy attorney. Contact The Faucette Law Firm at (770) 485-6620 if you're considering filing Chapter 7 bankruptcy and have questions about reaffirming your secured debts such as auto and mortgage loans.