When you enter bankruptcy protection and plan to keep a secured debt asset, such as a mortgage or car, you may be requested by your creditor to sign a reaffirmation agreement. This agreement is essentially a new contract between you and the lender that reaffirms your debt and personal liability for the debt. You may be wondering why you would need to sign this contract if you are under bankruptcy protection. In short, you don’t and it could complicate things if you do.
Things To Consider
The reaffirmation agreement basically sets aside a particular debt and does not allow it to be discharged in bankruptcy. The agreement states that as long as you make payments, the creditor promises not to seize the asset. Can’t bankruptcy protect my assets? Most of the time, yes.
You will not necessarily be stripped of your asset while in bankruptcy, especially if you file for Chapter 13. If you enter Chapter 7 bankruptcy a reaffirmation agreement may help protect your asset once your debts are discharged. However, in order to keep your secured debt asset after a Chapter 7 bankruptcy you must make consistent payments to the creditor until the debt is paid off.
While your creditor may imply that you need to sign the agreement in order to keep the asset, keep in mind that this agreement is voluntary. Some people find reaffirmation agreements beneficial when trying to protect a co-signer or spouse from being pursued by the creditor. By signing a reaffirmation agreement, you are promising the creditor to take full responsibility for the debt after your remaining debts are discharged. However, these agreements are not for everyone and a bankruptcy attorney should be consulted prior to agreeing to any outside contracts when seeking bankruptcy.