Reaffirmation is an agreement you make with your creditors to remain legally obligated to the debt during your bankruptcy case. Usually, this debt could have been eliminated during bankruptcy.
When It’s a Good Idea
It may be a good idea to sign a reaffirmation agreement if the creditor is giving you something of value like a reduction of secured debt. If you want to continue to keep the property used as collateral, and the bankruptcy court will not allow you to keep it without a reaffirmation. Or if after bankruptcy, you can easily afford the payments.
When it’s a Bad Idea
There are more reasons not to sign a reaffirmation than to sign it. You should always use caution when signing a document stating you will continue to pay on a debt that could have otherwise been eliminated in bankruptcy. You should never agree to a reaffirmation if:
- The creditor cannot prove the debt is secured.
- The debt is totally unsecured (like a credit card, or payday loan).
- You have no interest in keeping the secured debt.
- You are so far behind and unlikely to catch up in your secured payment, and the property is about to be repossessed.
- If you stop paying on a debt that you signed an agreement, you can be sued for payment.
Reaffirming Credit Cards
It is rarely a good idea to sign a reaffirmation agreement with a credit card company. They may present an attractive offer, such as a new line of credit or lower your monthly payment. What they are not telling you is that it may take several more years of debt to pay off that credit card and often with a higher interest rate. Your best option would be to eliminate that card in the bankruptcy and later down the road when you are in better financial health, obtain a new credit card with more favorable terms.
Just Say No
If a creditor asks you to sign a reaffirmation agreement, you have the right to decline or ask for better terms of the contract. You also have the right to voluntarily pay off a debt after your bankruptcy without signing any agreements.
If you are considering bankruptcy, contact a Fort Worth bankruptcy attorney today to discuss your options.