The U.S. Bankruptcy Code Reaffirmation Agreement: What You Need to Know
If you`re filing for bankruptcy in the United States, you may come across the term “reaffirmation agreement.” This refers to an agreement between a debtor and a creditor to continue paying a debt even after the bankruptcy process is complete. Here`s what you need to know about reaffirmation agreements and how they work.
What is a Reaffirmation Agreement?
When you file for bankruptcy, many of your debts will be discharged. This means that you`re no longer legally obligated to pay them. However, certain debts may not be dischargeable, meaning that you`ll still need to pay them after your bankruptcy is over. These debts may include things like taxes, student loans, and secured debts like mortgages or car loans.
If you want to continue paying one of these debts, you`ll need to sign a reaffirmation agreement with the creditor. This is a legal document that basically says that you agree to continue paying the debt, even though it wasn`t discharged in your bankruptcy. The creditor will also agree to continue servicing the debt and reporting your payments to the credit bureaus.
Why Would You Sign a Reaffirmation Agreement?
There are a few reasons why you might want to sign a reaffirmation agreement. One reason is that you may not want to lose the collateral that`s securing the debt. For example, if you have a car loan and you don`t sign a reaffirmation agreement, the lender may repossess your car even if you`re current on your payments. If you sign the agreement, the lender will allow you to keep the car as long as you keep making your payments.
Another reason to sign a reaffirmation agreement is that it can help to rebuild your credit score. If you have a history of timely payments on a certain debt, that can be a positive factor in your credit score. By signing a reaffirmation agreement, you`re essentially telling the credit bureaus that you`re committed to continuing to make those timely payments.
What Are the Risks of Signing a Reaffirmation Agreement?
There are some risks involved in signing a reaffirmation agreement. One risk is that you may be agreeing to pay a debt that you can`t afford. If your financial situation changes after your bankruptcy, you may find yourself struggling to make the payments on the reaffirmed debt. If you miss payments, the creditor can take legal action against you, even though you`ve already gone through bankruptcy.
Another risk is that you may be giving up some of your bankruptcy protections by signing a reaffirmation agreement. For example, you may be waiving your right to discharge the debt in a future bankruptcy. This means that if you run into financial trouble down the road, you won`t be able to wipe out the debt through bankruptcy.
Should You Sign a Reaffirmation Agreement?
Whether or not you should sign a reaffirmation agreement depends on your individual circumstances. If you can afford to make the payments on the reaffirmed debt and you want to keep the collateral, signing the agreement may make sense. However, if you`re not sure you can afford the payments or you`re concerned about giving up your bankruptcy protections, it`s a good idea to speak with a bankruptcy attorney before signing the agreement.
In conclusion, a reaffirmation agreement is a legal document that allows you to continue paying a debt after bankruptcy. While there are some benefits to signing a reaffirmation agreement, there are also risks involved. Make sure you understand the terms of the agreement and consult with a bankruptcy attorney before making a decision.