In bankruptcy proceedings, a debtor is entitled to receive a discharge, or forgiveness, of certain debts. Once the court grants discharge of a debt, a creditor may not seek payment or collect the debt. However, in certain circumstances, a debtor may wish to keep the asset that is the subject to discharge, such as a home or vehicle. In that situation, the debtor must enter into a written reaffirmation contract with the creditor and maintain payments on the asset.
A debtor is not required to reaffirm a debt that can be discharged in bankruptcy. However, a debtor will voluntarily do so if he needs the asset and is able to maintain payments. Additionally, a debtor may want to repay a debt if it is owed to a family member or to a creditor with whom he wishes to maintain a good relationship. Sometimes the debtor is able to voluntarily pay for an asset without signing a reaffirmation agreement.
Timing, Acceptance, and Revocation
A debtor must enter into a reaffirmation agreement before the court discharges the debt and concludes the bankruptcy case. The debtor has up to 45 days after the creditor meeting to either return an asset to a creditor or enter into a reaffirmation agreement. If the court determines that the debtor will be unable to make payments under the reaffirmation agreement, it may refuse to approve the agreement. Additionally, a debtor may revoke a reaffirmation agreement with a creditor within 60 days of signing such an agreement.
Generally, the debtor's attorney reviews and counsels the debtor regarding reaffirmation agreements. However, if the debtor is unrepresented by counsel, the court will determine whether the debtor will be able to make payments, whether the asset is an essential asset for daily living (such as a car), and whether the reaffirmation agreement is in the debtor's best interests. If the agreement meets these standards, the court approves the agreement at a reaffirmation hearing.
When is a Reaffirmation Agreement Advisable?
A reaffirmation agreement may be a good idea when the asset in question is one that is an essential element of daily life, such as a car, and the debtor will be able to keep current on payments. If retention of the asset makes recovery from bankruptcy impossible, a reaffirmation agreement may not be in the debtor's best interest.
In bankruptcy, a reaffirmation agreement allows a debtor to keep an asset as long as he maintains payments on that asset. Debts that are reaffirmed cannot be discharged in bankruptcy. Whether one should reaffirm a debt is an individual decision that should be made with care and with the advice of an attorney.