01 Jun Chapter 7 Bankruptcy And The Reaffirmation Agreement!
One of the hardest issues for a bankruptcy attorney to deal with is the issue of the Reaffirmation Agreement.
When a person files a Chapter 7 bankruptcyhe isgiven a rare opportunity: To start over fresh withouthis debts!
This means that a debtor has the right to get rid of both his debts tounsecuredcreditors and secured creditors. With the secured debt, the creditor can still seize and sell the item, most usually a car or a house, but since the debtor is no longer personally liable for the debt, the creditor is limited to the proceeds from the sale and can’t get a judgment against the debtor for any excess amount.
A reaffirmation agreement changesthis.
Ittakes away the freshstart because the debtor, by signing the agreement, agrees to continue to bepersonallyliable after hisbankruptcy for a debt that he would have otherwise discharged.
What this means as a practical matter is that once a debtor agrees to keep paying the debt, if something happens later andhe cannot continue to pay, the creditor has a right to go after the debtor personally.
There are three mainreasons why this issue is one of the hardest for a bankruptcy attorney:
- Americans are in love with their cars and will do most anything to keep the one they own;
- People look at having to give up a house as a sign of failure; and;
- Creditor’s know 1 and 2.
There are a number of requirements for a reaffirmation agreement to be valid:
- It has to be enforceable under non bankruptcy law.
- It must be made before discharge.
- The debtor must be informed by the Court or his attorney that he has a right not to enter into the agreement, and the legal effects must be explained.
- The debtor must have enough income to make the payments, or explain to the satisfaction of the Court what sources are available to pay the debt.
- The obligation to pay the debt must be in the debtor’s best interest.
The debtor has 60 days to rescind, from the date the agreement was filed with the Bankruptcy Court or before the court grantsthe discharge, which ever is longer.
The pros and cons of signing reaffirmation agreements will be discussed on this site over the next several days.
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