A reaffirmation agreement is a new contract between a debtor and a creditor. Before agreeing to the reaffirmation agreement, a debtor can attempt to renegotiate the terms such as a lower monthly payment or interest rate or even the balance. A lender is not required to renegotiate the terms of an existing debt, however, it is always worth a try. Remember, a reaffirmation agreement must be in writing, approved by the debtor’s lawyer or if the debtor is proceeding without a lawyer, approved by the bankruptcy judge before the bankruptcy is over.

A debtor is never forced to reaffirm a debt, although in many jurisdictions keeping a car may be conditioned on entering into a reaffirmation agreement with your lender. Reaffirmation is a serious matter which should be well thought out before a reaffirmation agreement is signed. The Bankruptcy Court will not approve a reaffirmation agreement that would impose an “undue burden” on a debtor. In other words, if you can’t afford to continue paying on a loan, a reaffirmation agreement is not going to work.

If a reaffirmation agreement is signed, the debtor is legally obligated to repay the debt despite the bankruptcy. If a debtor falls behind on a reaffirmed debt, he or she will face legal action by the creditor to recover the asset and/or back payments. Additionally, the creditor can require the debtor to cover any difference between what the asset sold for and the amount owed. Depending on the asset and the market, the difference could be substantial. Therefore, before signing a reaffirmation agreement, a debtor should consider whether he or she can make the payments after bankruptcy.

- Richard V. Stokan, Jr., Esq.