What is a Reaffirmation Agreement?
A reaffirmation Agreement is a contract between the debtor and the creditor made outside of the bankruptcy. The debtor agrees to make payments directly to the creditor to keep or reaffirm the asset. By signing a Reaffirmation Agreement, the debtor now owns the asset outright. The debtor must make total payments until the debt is cleared on the asset. If the reaffirmed vehicle is involved in an accident, debtors must know they are still responsible for paying for it. Additionally, if the debtor defaults on the payments by the Reaffirmation Agreement, the creditor will repossess the asset.
Why do debtors choose Reaffirmation?
The most typical asset for a Chapter 7 debtor to Reaffirm is their vehicle. Almost everyone in America needs a car or truck to get back and forth to work and live in our society. After filing for bankruptcy, getting a new vehicle loan can be difficult and expensive. Reaffirming their current vehicle allows the debtor to keep the asset without facing any significant change in cost. In contrast, they might face higher APRs and insurance rates for a new vehicle.
What if I don’t Reaffirm?
As the debtor filing for bankruptcy, you can decide what assets you want to reaffirm and which assets you wish to return to the creditor. When Reaffirming an asset, you must be able to show your income will be enough to pay the asset. The creditor will usually send you a surrender letter that states that you are choosing to surrender the asset and the address where the creditor can pick up the surrendered asset or even garnish your wages to pay off the debt.
Who prepares a Reaffirmation Agreement?
The creditors who own the assets you are trying to reaffirm will create the initial Reaffirmation Agreement, and your attorney or their paralegal will fill out the remaining parts of the agreement according to your Chapter 7 Voluntary Petition. The Reaffirmation agreement lists your income and expenses, showing you can pay monthly payments without undue hardships. The creditor uses Official Form 427 to send to the debtor to confirm the reaffirmation of the asset in question. The court must approve reaffirmation agreements that a Riverside attorney did not represent.
Using an Attorney for Reaffirmation
We strongly recommend using an experienced bankruptcy attorney, contact us for more email.