Should a Chapter 7 Debtor Ever Sign a Debt Reaffirmation, and Why?

Chapter 7 bankruptcy can offer you a fresh start by relieving you of the financial obligations you had to your creditors. Although most of your non-exempt property is liquidated during the process to pay off your debt, there may be some property you want to keep, such as real estate or a vehicle. Consequently, there may be some secured loans you don’t wish to discharge in bankruptcy.

A debt reaffirmation allows you to enter into an agreement with the creditor to repay the debt owned on specific assets. Reaffirming a debt can be a beneficial strategy not only for keeping the property but also for negotiating reductions in payments, interest rates or total amounts due.

To enter into a debt reaffirmation agreement, you’ll need to be current on the loan and be able to protect the property’s equity with a bankruptcy exemption. If there is any amount of equity that isn’t safeguarded by an exemption, the property may be sold by the bankruptcy trustee to pay off creditors.

The bankruptcy code has strict requirements that must be met for debt reaffirmations to be enforceable. The agreement must be in writing, signed and entered into voluntarily. A creditor must not have pressured or coerced you into entering into the agreement. If you are represented, your attorney must advise you of any legal ramifications of entering into the debt reaffirmation agreement. If you don’t have an attorney, the court will schedule a hearing to ensure an undue hardship is not imposed by your entering into the agreement.

Although a creditor may request that you reaffirm the debt, you should only do so if you know you will be able to pay the loan and that it won’t create an undue burden. While there are advantages to retaining your property, signing a debt reaffirmation means you will still be responsible for the loan after your bankruptcy case concludes. If you fail to make the promised payments, the creditor is entitled to commence a legal action against you or seek to repossess the property. Additionally, a debt reaffirmation may be canceled in some cases, either before the court issues a discharge or within 60 days of filing the agreement with the court.

With offices conveniently located in Athens, Douglasville, Gainesville, Lawrenceville, Marietta, and Scottdale, Jeff Field & Associates represents debtors in Chapter 7 bankruptcy proceedings throughout the Atlanta metropolitan area and beyond. To schedule an appointment, call 404-381-1278 or contact us online.

More on this topic:

Should I Reaffirm a Debt in a Chapter 7 Bankruptcy Proceeding?

What Is the Trustee’s Role in a Chapter 7 Bankruptcy?

Am I A Good Candidate for Chapter 7 Bankruptcy?

Lien Stripping of an Unsecured Junior Lien By A Homeowner In A Chapter 7 Bankruptcy