What is a Reaffirmation Agreement and Should I Sign It?

When you seek protection from creditors through a Chapter 7 liquidation proceeding, you have the right to reaffirm any debts, such as a vehicle loan. When you sign the reaffirmation agreement, you voluntarily waive the right to discharge the debt on that property. You may need your vehicle and be considering signing a reaffirmation agreement. Do you have to sign a reaffirmation agreement in order to keep your property? What happens if you do? What happens if you don’t?

Should I Sign the Reaffirmation Agreement?

A common fear that many people have is that, if they don’t sign the reaffirmation agreement, the creditor will either foreclose or seek repossession. This is a theoretical possibility, but rarely happens in practice, provided you remain current on your payments. If you establish good habits after your bankruptcy filing, you may be able to rebuild your credit to the point where you can refinance your home, so that you don’t need to worry about the impact of the bankruptcy filing.

With respect to a vehicle, there is a chance that the finance company will repossess, even if you are current, if you have sought to discharge the debt, but not signed a reaffirmation agreement. In general only Ford Motor Credit pursues post-bankruptcy repossessions even where payments are current, but every lender is free to set their own policies. Your best option may be to purchase another vehicle once your bankruptcy proceeding is complete, but you can sign a reaffirmation agreement, and you will be protected against repossession. However, you want to be certain that you can afford the car, and that the vehicle is worth what you owe on it.

With respect to other personal property, it is generally not advisable to sign a reaffirmation agreement. For example, with respect to furniture, jewelry, electronics or other items, the likelihood that the creditor will actually come to your home and take your property is minimal. These types of items lose much of their value as soon as you take them home, so your creditors don’t have much incentive to repossess them.

Contact John Hargrave & Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.