If you’ve gone through bankruptcy, entering into a reaffirmation agreement can be a way to retain assets–such as your home and car–that are paramount to your life. However, signing such an agreement means you are accepting responsibility for making payments on the underlying loans.
It is vital to fully comprehend the terms of the agreement and your ongoing obligations to make sure you have the financial wherewithal to handle the payments after a bankruptcy. Failure to do so could lead to unmanageable payments and financial strain.
What Exactly Is a Reaffirmation Agreement?
The primary objective of bankruptcy is to discharge or eliminate debts and the need to make payments. However, in certain situations, you might choose not to discharge a specific debt and agree to continue repaying all or part of a debt that could otherwise be discharged.
Reaffirmation agreements should be considered carefully and with legal advice. It can also be beneficial to enlist the services of a credit repair specialist like the Phoenix Group to help you rebuild and repair your creditworthiness after bankruptcy.
Reaffirmation agreements are most commonly used in Chapter 7 bankruptcy cases, in which the debtor seeks to discharge debts entirely rather than restructuring them into a new repayment plan as is often seen in Chapter 13 cases. These agreements provide a pathway for you to keep certain assets, providing a sense of continuity and stability, despite the disruptive nature of bankruptcy.
However, you should assess the asset’s current value and usefulness. If the asset is worth significantly less than the debt or isn’t necessary, it might not make sense to reaffirm.
Example of When You Might Reaffirm a Loan
With a reaffirmation agreement for your house, you are agreeing to continue paying your mortgage in exchange for being able to keep the house. How to refinance a house depends on factors like your lender’s policies, your credit score, and your financial stability post-bankruptcy.
How to Request a Reaffirmation Agreement
Once you’ve decided to reaffirm a debt during bankruptcy, you must express your intent before any assets are turned over to the lender.
Submit a Statement of Intent
When you submit a Statement of Intent to the bankruptcy court, it should also be sent to the respective lender. Typically, enlisting the assistance of a bankruptcy attorney can make this process smoother, ensuring your interests are well represented during the negotiation and drafting of the agreement.
Attend a Reaffirmation Hearing
A reaffirmation hearing allows a judge to review the terms of the agreement, ensuring its fairness and appropriateness to both parties involved. The process is designed to safeguard your interests and prevent any potential exploitation.
Sign and File the Reaffirmation Agreement
Upon reaching a mutual understanding, you and the lender must sign the reaffirmation agreement documentation. The next step is to file this signed agreement with the court.
Keep in mind that a reaffirmation agreement is legally binding, so it’s crucial to fully understand what you’re agreeing to and that the payments outlined in the agreement are within your means. Ultimately, the aim should be to strike a balance between retaining essential assets and maintaining a sustainable financial situation moving forward.
Discharge Is a Turning Point
When a court issues a discharge order in your bankruptcy case, it effectively marks the end of your personal liability for the debts included in your bankruptcy. At this stage, you will no longer have the option to reaffirm any debts.
Similarly, if your case has been closed by the court, reaffirmation is also no longer an option. The discharge is a pivotal event in the bankruptcy process–it essentially wipes the slate clean of your obligations to repay certain debts, providing you with a fresh start financially.
Get the Best Advice
Bankruptcy will impact your credit score, but taking steps toward recovery is possible. The Phenix Group can provide advice and strategies to rebuild your credit post-bankruptcy. Contact us to schedule a consultation today!
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