For many people in Rockland County, bankruptcy looks like an expert ski hill – once you start down, you have almost no way to stop. In the process, creditors will seize assets that provide security for a loan that will be discharged, and valuable assets, such as a car or a house, will be lost forever. The reality is a bit different. The careful use of debt reaffirmation can prevent the loss of some assets that have special value.
A debtor can prevent a debt from being discharged by entering into a reaffirmation agreement with the creditor. A reaffirmation agreement is a new contract that replaces the original loan agreement. The creditor agrees to cease collection activities and the debtor agrees to repay the loan according to a newly negotiated payment schedule. If the debtor is able to make payments under the new repayment schedule, the creditor will forego all collection actions.
Before a debt can be reaffirmed, the debtor must provide certain documentary evidence to the court. The debtor must provide a statement of current income and expenses, and this statement must demonstrate that the debtor will have enough income to pay living expenses plus the installments on the new payment agreement. The reaffirmation agreement must also state the amount of the debt being reaffirmed, how the balance was computed and most importantly, that reaffirmation means that the debt will not be discharged in bankruptcy. If the debtor has not been represented by an attorney in the reaffirmation transaction, a hearing before the judge is mandatory. The court can reject any reaffirmation agreement if it concludes that the debtor cannot sustain the payment schedule or if the proper disclosures have not been made.
The reaffirmation agreement must be signed by the debtor and submitted to the court before the order for discharge is issued. If the debtor was represented by an attorney, the attorney must affirm in writing that the debtor was advised of the legal effect of the agreement, that the debtor was fully informed and that the debtor voluntarily entered into the agreement.