I am sometimes asked as a Hainesville bankruptcy lawyer, what does it mean to reaffirm a debt?
To reaffirm a debt means to renew the obligation to pay for that debt. If you file a Chapter 7 bankruptcy case and you have a vehicle that is financed, you can keep that vehicle through the bankruptcy case and beyond provided you continue to make your regular monthly payments on time and provided that you have signed a valid, executed countersigned reaffirmation agreement.
A reaffirmation agreement is basically a separate document that has to be signed by the debtor, the debtor’s attorney and the finance company representatives which then gets filed with the clerk of the US Bankruptcy Court and reviewed by the clerk and the judge for approval. This is required and part of the bankruptcy process. If an individual signs a reaffirmation agreement, in this case on a vehicle, then the debt owed to that vehicle is going to survive the bankruptcy. What this means is if the individual fails to make timely payments after the bankruptcy case is over, the finance company will have the ability to repossess the vehicle and seek a deficiency judgment because the debtor agreed to be on the hook for that legal obligation once again.
So if you file Chapter 7 bankruptcy, the individual has an opportunity to say I don’t want to keep the vehicle. I don’t want to be obligated on the debt and I would prefer to surrender the vehicle back to the lender. If that’s the case, the lender will take the vehicle back, sell it at auction and the debtor will not be responsible for any amount owed as a deficiency. The lender always insists on a reaffirmation agreement because it gives the lender that second opportunity to pursue the debtor should the debtor fall behind in the vehicle wind up being repossessed.
Now, a reaffirmation agreement could also be performed on other items aside from vehicles such as furniture, jewelry, electronics, carpeting, heating and air-conditioning systems, pull systems; anything that is secured that is not yet paid for, that finance company could and should tender a reaffirmation agreement in an attempt to get the debtor to re-up the debt. There are mortgage companies that also send reaffirmation agreements hoping that the debtor will sign and be obligated on the mortgage. I as a bankruptcy lawyer, never recommend a reaffirmation agreement on real estate. It is simply not mandated under the Bankruptcy Code.