Reaffirmation

After a debtor files for bankruptcy, many creditors ask him or her to sign a reaffirmation agreement. A reaffirmation agreement is a written agreement between the debtor and the creditor whereby the debtor agrees to continue making the payments to the creditor even though the debt would ordinarily be discharged. This means that this particular debt is not canceled when the debtor receives the discharge. It becomes a new contract between the debtor and the creditor. If the debtor does not pay the creditor as he or she is required to do under the reaffirmation agreement, then the creditor may pursue all collection efforts against the debtor, including suing the debtor and obtaining a judgment and garnishing wages.

The advantage of reaffirming the debt is that the creditor may allow the debtor to continue using its services. For example, if the debtor had a loan with a credit union, by reaffirming the debt, the debtor may be able to get new loans with the credit union once the reaffirmed debt is paid in full. If the debtor does not reaffirm the debt with the credit union, then the credit union will usually suspend the debtor’s privileges.

Debtors are not obligated to reaffirm any debts and should consider whether they can afford to make the payments called for under the terms of the reaffirmation agreement before they consent to it. If after the agreement is signed and filed with the court the debtor realizes he or she made a mistake, they have 60 days to cancel the reaffirmation agreement. The debtor does not have to state a reason for the cancellation and if canceled timely, the creditor must return all monies sent to it pursuant to the agreement.

It may not be necessary to reaffirm the entire amount requested by the creditor. The debtor’s bankruptcy lawyer may be able to negotiate with the creditor to reduce the interest rate, lower the principle balance due or lower the amount paid each month. The reaffirmation agreement will state the original terms and also the new terms. If the new terms are still beyond the debtor’s budget, I would recommend that the debtor not sign the agreement.

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.