Bankruptcy Alphabet-R is for Reaffirmation Agreements

When consulting with a client about bankruptcy I often hear, “I don’t want to put my car in the bankruptcy”. I understand what they’re saying, but officially, everything you own and everyone you owe needs to be listed in your bankruptcy petition So how do we deal with property a debtor wants to keep?

         
            R is for Reaffirmation Agreement

Photo by Leo Reynolds

As the name infers, a reaffirmation agreement is a debtor’s reaffirming of an agreement made prior to the bankruptcy filing. They are only used in Chapter 7 liquidation cases.

Here’s how it works:
You have a house, a car and maybe a bedroom set purchased at Nebraska Furniture Mart. You want to keep that stuff and the items are all fully exempt from being claimed by the bankruptcy trustee for liquidation. The first thing we do is fill out the Statement of Intention, which is included in the initial bankruptcy petition filing. In the Statement of Intention, the property that have liens on them are listed along with boxes to indicate whether the debtor wants to keep the property or surrender it. The Debtor wants to keep all of the property, so each box is checked accordingly.

When the bankruptcy petition is filed, the creditors holding the liens will receive notice of the filing. They should look up your Statement of Intention to determine whether a Reaffirmation Agreement is necessary to send to your attorney. Sometimes creditors send a Reaffirmation Agreement regardless of your intention.

Once the debtor receives the Reaffirmation Agreement, it needs to be filled out. It will ask for the debtor’s monthly income, expenses and whether the debtor can afford to continue making payments on the loan.

The Reaffirmation Agreement needs to be returned to the Creditor for filing and must be filed within 45 days of the Meeting of Creditors. The Reaffirmation Agreement is essentially the debtor’s new contract with the creditor for the property. By signing and filing the Reaffirmation Agreement, you are waiving the discharge of debt you would have received for that particular debt. While you are waiving the discharge of debt, you do guarantee that you will be able to keep the property as long you continue to pay for it.

Even after signing and filing a Reaffirmation Agreement, you can change your mind and rescind the agreement. You may rescind at any time prior to the entry of a discharge order in your case or within 60 days of the filing of the Reaffirmation Agreement, whichever is longer.

Is there a court hearing?
Yes and no. If the Debtor has an Attorney and the Attorney certifies to the Court that the Debtor can afford to make the payments under the Reaffirmation Agreement, no court hearing is necessary. If the Debtor doesn’t have an Attorney, or the Attorney does not certify that the Debtor can make the regular payments, a hearing will be required where the debtor will speak to the Bankruptcy Judge on whether the Debtor can afford to make the payments or not.

What if a Debtor doesn’t sign a Reaffirmation Agreement?
Sometimes its not in the Debtor’s best interest to sign a Reaffirmation Agreement. He is better off surrendering the property. By not signing the Reaffirmation Agreement, the Debtor will lose the property, but not be responsible for the debt on the property because of the discharge.

Sometimes creditors do not send out Reaffirmation Agreements. This is often the case with residential property. The Debtor can still continue to possess the property if regular payments are made, but it should be noted that the debt is discharged in your bankruptcy case. The lien attached to the property will continue to exist, however. The creditor could foreclose or repossess property when a Reaffirmation Agreement is not signed, but it hasn’t been the experience in Nebraska.

The Reaffirmation Agreement process is complicated and you should work with your attorney to determine whether you should enter into the agreement or not.

Other Bankruptcy Attorneys talking about the Letter R include:

Redemption-New York Bankruptcy Lawyer, Jay S. Fleischman

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