The benefits of a reaffirmation agreement

On Behalf of | Nov 12, 2020 | personal bankruptcy |

Most residents of Will County consider bankruptcy a means of shedding debts they cannot pay. Rarely to these debtors look at the benefits of reaffirming one or more debts. Reaffirmation of a debt in a bankruptcy proceeding can, however, result in the debtor keeping possession of a valuable asset, a car, for example, instead of turning the asset over to the trustee and permanently losing possession.

The mechanics of a reaffirmation agreement

The reaffirmation process is entirely voluntary. No one, not even the court, can force the debtor to agree to reaffirm a debt. However, once the debtor has signed the reaffirmation agreement, the agreement is binding until the debt is retired.

Whether the debtor should sign a reaffirmation agreement is the central question. The debtor must first decide whether the relative importance of the asset justifies agreeing to repay a debt that might otherwise be discharged. If the debtor can replace the property that is subject to the security interest for less money than would be required to pay off the reaffirmation agreement, the agreement should be rejected. A second question is whether the amount of the reaffirmed debt will exceed the value of the asset in question. If the answer is yes, reaffirmation should again be rejected.

The reaffirmation agreement is created by the debtor signing the form issued by the bankruptcy court. The form must be filed with the court within 60 days of the date set by the court for the first meeting of creditors. The form must then be signed by the attorney representing the debtor. If the debtor is not represented, the court will require the debtor to appear in court at a later date to testify to the ability to make the payments called for in the agreement.

Be well-informed before you sign the reaffirmation agreement

A reaffirmation agreement can provide obvious advantages to the debtor, but the debtor should review the mechanics of the agreement and carefully ensure that the reaffirmed debt can be paid on time. The best process is to review the agreement with an experienced bankruptcy attorney to ensure that signing the agreement will simply return the debtor to the financially over-stressed situation that existed before the bankruptcy petition was filed.