Understand Your Reaffirmation Agreement Before You Sign……
I have written several articles on the National Bankruptcy Forum regarding reaffirmation agreements in bankruptcy. However, the legal consequences of such agreements are often not fully understood. Before agreeing to reaffirm a debt after bankruptcy, it is always wise to consult your bankruptcy attorney.
In short, a reaffirmation agreement is a new contract signed between the debtor and a lender that reaffirms the debtor’s personal liability for a debt (typically an automobile or home). This agreement essentially states that the debtor will continue to pay all or part of the debt obligation (depending upon what is negotiated) to the creditor – bankruptcy notwithstanding – in order to retain the vehicle or real estate.If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered by signing a written reaffirmation agreement and file it with the court. 11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain detailed disclosures set forth at 11 U.S.C. § 524(k). Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated. The disclosures must also explain that reaffirmation means that the debtor’s personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.
If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal effect and consequences of the agreement, including a default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor’s dependants. The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. However, even in the absence of a reaffirmation agreement, the debtor may repay any debt voluntarily.