Bankruptcy Basics: What Is A “Reaffirmation Agreement”? (2024)

Many people assume that filing bankruptcy means that you have to get rid of everything you own. They think that they will have to give up their car or their home, even though they have spent years paying for these items. Thankfully, this type of thinking is generally not true in either Chapter 7 or Chapter 13 bankruptcy. In Chapter 13, you will work with your Salt Lake City bankruptcy attorney to develop a payment plan that works for you. In a Chapter 7 bankruptcy, you may want to consider using a reaffirmation agreement.

Understanding Reaffirmation Agreements

Most debtors enter bankruptcy because they want to discharge their debts. However, there may be some debts that you would like to keep paying on for various reasons. You may be able to discharge your other debts while still maintaining your current obligation to a specific creditor.

There is nothing in the bankruptcy code that stops you from voluntarily continuing to pay debt obligations once you are in bankruptcy. However, you may need to take steps to let your creditor know that you want to keep paying for that debt. In those situations, you will enter a “reaffirmation agreement” with that creditor. This agreement lets the creditor know that you plan to keep paying on the debt even though you have filed for bankruptcy.

Once you enter a reaffirmation agreement, you are contractually bound to keep paying on that debt, often as if the bankruptcy never occurred. Because the legislature was concerned about debtors entering these agreements without fully understanding them, there are special procedures that must be followed if you want to use a reaffirmation agreement.

Why Would You Use a Reaffirmation Agreement?

While the vast majority of debtors will want to discharge all of their debts, there are situations where a reaffirmation agreement might make sense. The most common examples are vehicles and houses because these debts have property to secure them. In fact, most debts that are reaffirmed have property attached to them.

Reaffirming a house or a car might make sense for several reasons, including the following examples.

• Once you have discharged your other debts, you may be able better make payments on these larger items.
• You have significant equity in the car or house, and you don’t want to waste that by having to turn it over to the trustee to be sold in bankruptcy.
• You need a home or a car, and you would not be able to get better financing than you already have.
• You have an ongoing relationship with that particular bank or lending institution that you do not want to harm.
• You want to keep a relationship with family or a friend who loaned you money.
• The property has a co-signer that you do not want to stick with the debt for that property.

Whether reaffirming a debt make sense for your situation will depend on a lot of factors. A Salt Lake City bankruptcy attorney will be able to help you decide by examining all angles of this decision. Justin M. Myers, Attorney-At-Law, LLC wants to help you through this process. Call 1-801-505-9679 to schedule your free consultation.