What is a Reaffirmation Agreement in Bankruptcy?
One of the top questions that I get as a consumer bankruptcy lawyer in Seattle is “What is a Reaffirmation agreement and should I sign it?” The answer to that question is it depends on your situation and what you are looking to achieve. Reaffirmation agreements are associated with secured debts that are tied to property such as a vehicle, home or furniture/electronics in some cases. If your intent is to surrender your property you should never sign a reaffirmation agreement.
When you file for bankruptcy protection under chapter 7 bankruptcy or chapter 13 bankruptcy you are protected by the bankruptcy automatic stay. This rule stops any creditor, including secured creditors, from collecting on debts. This causes a problem because your secured creditors want to be paid on the secured debts or they will seek relief from the automatic stay from the bankruptcy court in order to repossess your things in some cases if they are not being paid for.
If you sign a reaffirmation agreement with your lender you are agreeing that you will be liable for the debts post bankruptcy filing. This can allow debtors some piece of mind as property will not be repossessed immediately, you can negotiate better interest rates in exchange for signing, the debt will be reported on your credit properly and you will receive regular invoices once again. The flip sign of signing a reaffirmation agreement is that you will be liable for the debts post filing no matter what happens to the property. I generally advise clients not to sign a reaffirmation agreement because in general if you continue to to pay your loan every month, your property will not be repossessed, and in my experience nobody has had furniture or electronics repossessed post bankruptcy filing so I usually tell clients that it is best to take your chances on these items and not sign a reaffirmation agreement. These items often lose their value quickly and are not worth what is owed to the creditors.
In regards to home loans, it usually never makes sense to sign a reaffirmation agreement on these loans as a bank still must foreclose on a home to repossess it and if you continue to make the payments on the home you will not be in a position to face any sort of foreclosure action.
If you have additional questions regarding reaffirmation agreements please contact Symmes Law Group at 206-682-7975