Reaffirmation Agreement: A Basic Guide

What Is A Reaffirmation Agreement?

A reaffirmation agreement is a legally-binding document that establishes the legal obligations of a borrower to repay some or all of it during bankruptcy. Entering into an affirmation agreement is entirely voluntary.

However, there are advantages of repaying a debt under a reaffirmation agreement for both the bankruptcy debtor and creditor. One disadvantage for the creditor is having a deficiency judgment on your record as this can make it harder to get a loan in the future. However, the advantage is if you make your payments on time you can rebuild your credit rating.

The upside for the creditor in a reaffirmation agreement is they don’t have to resell the collateral or hire a company to repossess it. The downside is the creditor may not get all their money back.

Since state and federal laws apply, ensure that you speak with bankruptcy lawyers for legal advice regardless of your position.

Here is an article about reaffirmation agreements.

Understanding Reaffirmation in Chapter 7 Bankruptcy

When a bankruptcy debtor files for bankruptcy, he or she can seek a reaffirmation during Chapter 7 filings. Instead of allowing the property to be liquidated towards bankruptcy proceeds, the debtor can seek new terms to partially or totally repay the loan amount. If you are seeking approval for a reaffirmation in bankruptcy court, you must seek approval to do so from the bankruptcy judge assigned to your case.

What Happens In A Reaffirmation Hearing?

Reaffirmation hearings occur because a bankruptcy judge must review the agreement to ensure that they are in the debtor’s best interest. After filing the reaffirmation agreement with the bankruptcy court, a reaffirmation hearing is scheduled.

For you to receive reaffirmation approval, you must attend it. If you fail to show up to your reaffirmation hearing, the judge could deny your car loan, student loan, forbearance agreement, or mortgage reaffirmation.

These are some elements that a bankruptcy judge may review during a reaffirmation hearing:

• How much your property is worth
• Whether you can afford the mandated monthly payments
• If your income or expenses changed since filing for bankruptcy
• How many payments you have historically missed
• Whether you are current on your payments

Here is an article about understanding reaffirmation in Chapter 7 bankruptcy.

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Key Terms In A Reaffirmation Agreement

It is essential to create a reaffirmation agreement that includes all required details. These are the key terms in a reaffirmation agreement:

• Amount being reaffirmed
• Annual percentage rate (APR)
• Debtor’s statements in support of reaffirmation
• Certification of both parties
• Disclosures and statements
• Definitions
• Instructions

Some of these key terms are more advanced than others. Your reaffirmation agreement’s scope and dept depend upon the asset in question and your specific financial situation. You can anticipate what to expect by understanding how reaffirmation agreements work.

How Reaffirmation Agreements Work

Reaffirmation agreements are filed with the U.S. bankruptcy court to demonstrate a written acknowledgment of new debt. These contracts are typically written by bankruptcy lawyers for the creditor. The terms and conditions contained within affirmation agreements are subject to court approval. The court looks at the agreement to ensure it is in the debtor’s best interests and does not create undue hardship.

Here is an article about how reaffirmation agreements work.

Reaffirmation for Borrowers

Borrowers should think carefully about signing a reaffirmation agreement. There are significant advantages and disadvantages of signing one. However, they are also opportunities to retain your assets while negotiating a lower payment or interest rate.

The most significant disadvantage of reaffirmation agreements for debtors is that they cannot default on the loan in the future. Repaying the debt is required for you to successfully exit Chapter 7 bankruptcy proceedings. If you do not pay the loan, then the creditor can repossess your property.

It is essential to only enter into reaffirmation agreements if you are reasonably confident that you can pay the debt off. Another way that bankruptcy lawyers look it is by asking clients if they can replace the item for less than what they currently owe.

Reaffirmation for Lenders

Reaffirmation agreements can help a lender recuperate payments from a debtor. Doing so helps them avoid the liquidation or auction process, which can be much cheaper for the creditor in the long run. However, reaffirmation agreements are prime for pitfalls and traps without sound legal advice from creditor-side bankruptcy lawyers.

Getting a reaffirmation is a time-sensitive process and subject to court approval. Preliminary negotiations can lead to delays in bankruptcy proceedings. If obtaining money on a defaulted asset is of concern to you, you must establish a reasonable reaffirmation agreement and consider all applicable laws.

Example of Reaffirmation

If you need an example of a reaffirmation, you can perform a Google search to locate a boilerplate template for the agreement. However, these documents are not customized for your situation, which you should carefully consider before signing one. Always speak with bankruptcy lawyers to help you make a decision.

Here is an example of a reaffirmation agreement.

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Purpose Of A Reaffirmation Agreement

The purpose of a bankruptcy reaffirmation agreement is to protect all parties with a financial and legal interest in the Chapter 7 bankruptcy proceedings. It establishes the terms and conditions of reaffirming an asset and can be negotiated to benefit both the creditor and debtor.

Who Signs A Reaffirmation Agreement?

The individuals who sign a reaffirmation agreement include:

• Debtor
• Joint debtor
• Creditors
• Debtor’s attorney

After signing a reaffirmation agreement, then all parties acknowledge the terms set forth. However, the court must approve the agreement before it becomes finalized.

What Happens If You Don’t Sign A Reaffirmation Agreement?

If you don’t sign a reaffirmation agreement, then you may stand to lose the non-exemptible portion of the asset. As such, the asset, such as a car or furniture, could be liquidated as part of your Chapter 7 bankruptcy proceedings. However, signing a reaffirmation agreement ensures that it stays out of the matter.

Can You Negotiate A Reaffirmation Agreement?

Yes, you can negotiate a reaffirmation agreement. Since your bankruptcy is contingent upon your financial situation, hire bankruptcy lawyers to negotiate the terms and conditions. Creditors are interested in getting paid, which means that you have a chance to negotiate with them.

You can negotiate the following assets in a reaffirmation agreement:

• Motor vehicles
• Jewelry
• Furniture
• Appliances
• Electronics
• And more

When negotiating reaffirmations, it is imperative to convince the creditor to lower your interest rate, loan balance, or both. The easiest way is to ask the creditor. The worst they can do is say no or come back with a different offer. However, the most essential element to remember is that the terms are open for negotiation. When negotiating, be polite, firm, and clear in what you want.

Getting Help With A Reaffirmation Agreement

Regardless of your role in the bankruptcy, getting help with a reaffirmation agreement starts by hiring bankruptcy lawyers. They will help you deal with the legal and financial issues associated with reaffirmation agreements. Bankruptcy lawyers will also help you with negotiating and filing the document as well.

These are the ways that bankruptcy lawyers help with reaffirmation agreements:

• Offering legal options for bankruptcy to debtors or preparing creditors
• Drafting the reaffirmation agreement while complying with federal and state laws
• Appearing in bankruptcy court during the meeting of the creditors
• Addressing remaining legal and financial issues experienced by creditors and debtors
• Guiding the parties through bankruptcy toward a successful exit

Simply put, bankruptcy lawyers help you make the bankruptcy process more manageable, whether you are the creditor or debtor. They hold your legal and financial interests in mind at every critical point of the proceedings.

Without solid legal advice, you could make legal mistakes that negatively impact your financial health. Avoid this problem altogether by hiring bankruptcy lawyers to help you with a reaffirmation agreement.

Need Help with a Reaffirmation Agreement?

If you need help with a reaffirmation agreement, speak with bankruptcy lawyers today. Consider posting your project to ContractsCounsel at no cost.