Reaffirmation agreements only pertain to Chapter 7 bankruptcies. Occasionally, a creditor will request that you sign a reaffirmation agreement. Some car companies make the request for their car loans. Essentially, it is a contract that you sign after you file a Chapter 7 that legally binds you to the original or modified terms of the original contract. A reaffirmation agreement will survive your bankruptcy as if you had never petitioned for protection. David Arietta does not recommend that you sign reaffirmation agreements but just continue making payments on your car loan or home loan. By not signing the agreement, you can retain the ability to surrender the vehicle without any obligations, even after the bankruptcy is finished.
As a little background, creditors used to use a variety of coercive tactics like threats of repossession, collection activities directed at co-signors, and refusal to lend more money without reaffirmation. Reaffirmation agreements are restricted significantly under the theory that reaffirmation is rarely a wise step for a debtor. A number of requirements must be followed before a reaffirmation is binding. There must be an agreement between the debtor and the creditor that is enforceable under the applicable state law. The reaffirmation agreement must be made prior to the entry of the discharge in the bankruptcy case. The discharge is entered approximately 3-4 months after the case is filed. The reaffirmation agreement must contain certain disclosures that are clear and conspicuous. Those disclosures are similar to those required for consumer credit transactions under the Truth in Lending Act and incorporate certain concepts from that law. The disclosures require the use of particular terms and phrases such as “amount reaffirmed” and “annual percentage rate”.
Without a written agreement there cannot be a reaffirmation. Court approval of the reaffirmation agreement is required. Only the debtor may apply to the bankruptcy court for approval of the reaffirmation agreement. The agreement may alter the terms of the original contract either in favor of the debtor or the creditor. The debtor must be informed of the right not to enter into the agreement and of the legal effects of the agreement and any default thereunder. One the discharge has been entered, reaffirmation is no longer possible. The case cannot be reopened to then file a reaffirmation agreement.
David Arietta helps his clients consider whether entering into a reaffirmation agreement is in their best interests.