Reaffirmation Agreement: A Basic Guide
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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.
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.
Image via Pexels by Andrea Piacquadio
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.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
Meet some of our Reaffirmation Agreement Lawyers
Jeremiah C.
Jeremiah C.
Creative, results driven business & technology executive with 27 years of experience (17+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.
"Jeremiah was pleasant to speak to and provided high quality work. I appreciate that he took the time to call me personally instead of a paralegal. Work delivered early and high quality! Highly recommend"
Jason H.
Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.
"Wonderful attorney! He was extremely professional, answered all of my questions and was patient with my complicated legal situation. Don’t hesitate to hire him."
Daehoon P.
Daehoon P.
Corporate, M&A & Securities Lawyer | Managing Attorney, DP Counsel PLLC Practice Areas: Business Formation | Commercial Contracts | Contract Drafting & Review | Mergers & Acquisitions | Venture Capital | Securities Offerings | Franchise Law | Employment & Equity Compensation | Intellectual Property | Cross-Border Transactions About/Bio: I represent companies, investors, and fund sponsors in corporate transactions, commercial contracting, and private securities matters, from entity formation and early-stage financings to acquisitions, exits, and ongoing strategic counsel. As Managing Attorney of DP Counsel PLLC, I help clients structure transactions clearly, allocate risk thoughtfully, and move deals forward with documentation that is practical, enforceable, and aligned with business objectives. My practice includes both day-to-day commercial matters and more complex transactional work, including venture financings, private offerings, M&A deals, fund-related documents, and cross-border structuring. What I Do: Corporate & Commercial • Entity formation and structuring for corporations, LLCs, and limited partnerships • Operating agreements, shareholder agreements, and governance documents • Commercial contract drafting, review, and negotiation • Vendor, distribution, manufacturing, SaaS, and licensing agreements • Employment, consulting, confidentiality, and equity compensation agreements • Outside general counsel support for growing companies Securities & Private Capital • Private offerings under Regulation D and Regulation S • Private placement memoranda, subscription agreements, and investor documents • SAFE, convertible note, and priced equity financings • Venture capital and private fund formation matters • Fund governing documents and offering document packages • Securities law analysis for private capital raising transactions Mergers & Acquisitions • Letters of intent and term sheets • Stock purchase, asset purchase, and merger agreements • Due diligence coordination and transaction support • Disclosure schedules, closing documents, and post-closing matters • Earnouts, rollover equity, indemnity structures, and related deal terms • HSR, CFIUS, and related regulatory issue spotting for qualifying transactions Digital Assets & Emerging Technologies • Federal-law digital asset and token securities analysis • Entity structuring for blockchain and Web3 ventures • Digital asset fund and operating structures • AML/KYC documentation support and regulatory issue spotting Franchising • Franchise Disclosure Documents (FDDs) • Franchise agreements • Master franchise and area development agreements • Franchise structuring and registration coordination Real Estate Transactions • Commercial real estate acquisitions and dispositions • Real estate joint ventures and syndications • Commercial lease drafting and negotiation • Real estate investment structures and related offering documents Cross-Border & International • U.S. market entry and entity structuring for international clients • Delaware and multi-entity holding structures • Cross-border transaction planning and documentation • Coordination with foreign counsel and tax advisors on cross-border matters Why Clients Hire Me: • Big-law-level drafting with boutique responsiveness • Practical, business-focused advice grounded in execution reality • Clear scoping and transparent fee arrangements • Experience across financings, acquisitions, fund formations, and cross-border transactions Typical Projects: • Contract drafting and negotiation • Entity formation and governance packages • Private offering document suites • Venture financing documentation • M&A transactions from LOI through closing • Fractional or outside general counsel support Industries Technology | SaaS | FinTech | Digital Assets | E-commerce | Healthcare | Real Estate | Food & Beverage | Professional Services
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Anatalia S.
High quality work product at affordable prices.
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August 24, 2020
Jeffrey P.
Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.
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Rinky P.
Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.
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Nicole R.
Full-service boutique law firm providing personalized services in business law, trademarks, and real estate closings/title work.
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