What is a Reaffirmation Agreement?

There are two documents which protect a secured creditor.  Both are very powerful.  One is a security agreement where you pledge property (house or car) as collateral.  The other is a promissory note that makes you personally liable for the loan.  If you later default, the creditor can then go after the property AND you.

If you file a Chapter 7 bankruptcy, however, the promissory note is destroyed.  Great news for you, but not so great for the lender.  If you stop making payments, the creditor’s only recourse is to take back the property.  You can’t be sued for the debt!

As you decide whether to keep the property, the lender often becomes nervous and prepares what is called a reaffirmation agreement.  Such an agreement is a new contract where you forfeit bankruptcy protection and the lender agrees not to repossess the property if you stay current.  This new agreement then replaces the original promissory note that was destroyed in your Chapter 7 bankruptcy filing.

If a reaffirmation agreement allows you to keep your property in exchange for a promise to repay, who would have a problem with this?  Answer: most experienced Chapter 7 bankruptcy attorneys. [Read more…]