Reaffirmation Agreements – What Are They?

Reaffirmation Agreements – What Are They?

Birmingham Bankruptcy Attorneys assisting bankrupt clients negotiate reaffirmation agreements in Gardendale, Helena, Holt or anywhere else in Alabama

Reaffirmation agreements are contracts between a debtor in bankruptcy and a creditor that reaffirm the debt that would otherwise be discharged in bankruptcy, thereby allowing the creditor to continue to pursue the claim after bankruptcy. In essence, the debtor waives discharge as to a certain debt, promising to pay the creditor even though the debtor would not be obligated to absent the reaffirmation. Reaffirmation agreements are strictly voluntary – a creditor cannot force a debtor to sign a reaffirmation, and can get into trouble by representing to the debtor that it has such a right. A debtor should carefully consider whether he or she will be able to make the promised payments, because after discharge, the debtor may not receive another discharge for eight years.

Sometimes a reaffirmation agreement is a good idea. For instance, suppose you borrowed money in order to purchase a car some years ago, and have managed to keep current on the payments despite falling behind with other creditors. You likely have a good bit of equity in the vehicle. However, the agreement you signed when you borrowed the purchase price might specify that a bankruptcy filing is an event of default. This would mean that after the discharge, even though you never fell behind on your payments, the lender could repossess the vehicle. The lender may be worried about your ability to repay and wants the extra assurance by means of a reaffirmation agreement.

Sometimes, however, reaffirmation is a terrible idea. For instance, most lawyers never recommend that a debtor sign a reaffirmation agreement with regards to a home mortgage loan. This is because if you fall behind again on your mortgage payments, the bank can not only foreclose and sell your home, but come after you individually for any deficiency resulting from the sale.

If a creditor wants you to sign a reaffirmation agreement, you need to consult with an experienced bankruptcy attorney before making this decision. Do not let a creditor persuade or intimidate you into signing this agreement, because by signing it you are giving up the very protection that you filed bankruptcy for in the first place: discharge of old debts. If you are considering a reaffirmation agreement, or even if you have already signed one and are having second thoughts, contact the bankruptcy professionals at Parkman White, LLP right away. Contact us at 205-502-2000 for your free consultation, and let us put our experience to work for you.