Bankruptcy Basics: What Is A Reaffirmation Agreement?

A reaffirmation agreement is an agreement where a debtor chooses to become legally obligated again to pay all or portion of a debt which would be discharged in the bankruptcy case. A reaffirmation agreement must be filed within 60 days after the meeting of creditors date. Reaffirmation agreements are voluntary. They are not required by the Bankruptcy Code or other state or federal law. After bankruptcy, a debtor can voluntarily repay any debt rather than sign a reaffirmation agreement, but since October 2005, there may be valid reasons for signing a reaffirmation agreement (at least in regard to vehicles). 

Attorneys can certify for their clients that signing a reaffirmation is not a hardship for their client. If there is no attorney, the Court usually wants to meet with the debtor to make sure the debtor knows that the reaffirmation is voluntary. If a judge does not believe that a reaffirmation agreement is in a debtor’s best interest, the judge may refuse to allow the reaffirmation agreement to be entered as a binding agreement.

Since a reaffirmation agreement takes away some of the “fresh start” given by a discharge of debts in bankruptcy, some attorneys will advise strongly against signing one. Even if one is signed, the Debtor has 60 days after the agreement is filed with the court or from the discharge date to change his mind. All that is needed, is a letter saying “I don’t want this agreement”, with the letter being sent to the court and to the creditor.

Before October 2005, when the bankruptcy law was changed, there were four choices in Chapter 7 in regard to secured debt.   1.  Redemption (buying the value of the car from the creditor — which requires a source of funds); 2.  Surrender (giving the item which secures the debt back to the creditor); 3.  Reaffirmation (discussed above); and 4.  “Keep and Pay” (as long as the debtor keeps paying for the secured item, the debtor can keep the secured item).   Since 2005, the status of “keep and pay” is uncertain as that option is not mentioned in the new Act (while the other three are specifically mentioned).   The ability to “keep and pay” is a right under state law, not bankruptcy law, so each state will be determining whether their state still provides for “keep and pay”.

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