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The Advantages of Reaffirming a Debt in Bankruptcy

Law Office of Ronald V. De Caprio May 17, 2018

When a resident of Rockland County considers filing a bankruptcy petition, one of the many questions he or she may have is whether he or she will be able to keep his or her car. The answer depends in part on the kind of bankruptcy petition that is filed and also on whether the debtor elects to reaffirm the installment payment agreement that was used to finance the original purchase of the car.

If the debtor files a consumer bankruptcy under Chapter 13 petition, the status of the car loan will be included in the reorganization plan. Most debtors keep their car and propose a schedule to make up late payments. In a Chapter 7 proceeding, the installment purchase agreement is canceled and the creditor usually reclaims the car. If, however, the debtor wants to keep the car, he or she can “reaffirm” the debt and enter a reaffirmation agreement with the creditor.

A reaffirmation agreement is a new contract between the creditor and the debtor in which the debtor agrees to begin making payments and the creditor agrees to stop any foreclosure or repossession proceedings. The agreement must be signed and submitted to the court before the order for discharge of remaining debts is signed. The agreement must satisfy the conditions set forth in 11 U.S.C. §524 of the Bankruptcy Code. The debtor’s attorney must submit an affidavit stating that the reaffirmation agreement will not impose an undue hardship on the debtor and that the attorney has fully explained the consequences of executing the reaffirmation agreement.

Reaffirmation agreements can offer many hazards to an uninformed lay person. Anyone contemplating filing a Chapter 7 petition and who wants to keep certain crucial assets may wish to seek the help they need to select exempt assets and properly use a reaffirmation agreement.

Source: FindLaw, “Chapter 7: Debt Discharge,” accessed on May 13, 2018