Chapter 7 Reaffirmation Agreement

Chapter 7 Reaffirmation Agreement

Reaffirmation agreement is a contract entered into during a Chapter 7 bankruptcy case which stops the particular debt from being discharged. It creates an obligation to repay that debt after the bankruptcy case is completed.

Typically, only secured debts are reaffirmed in order to allow the debtor

to retain the collateral. Under the amendments to the Bankruptcy Code, secured creditors can treat the filing of the bankruptcy as a default and use that as a basis to repossess their collateral (such as an automobile) after the bankruptcy case is over, if applicable state law allows it. As a result, the only sure way to keep a secured motor vehicle or other personal property is to enter into a reaffirmation agreement.

However, there is a big downside to reaffirmation agreements, namely that if you fail to make the required payments, not only can the creditor repossess its collateral, but the debtor will also owe whatever is left on the balance of the reaffirmed debt.

The upside is that the majority of vehicle creditors will allow debtors to just stay current and maintain their payments without entering into a reaffirmation agreement.

Additionally, if a debtor attempts to ratify a reaffirmation agreement and the judge denies it, then the debtor should be able to retain the collateral and make payments because they have done all that is required of them by the bankruptcy code.

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