One option available to debtors during bankruptcy proceedings is the reaffirmation of debt. This process is typically done by entering into a reaffirmation agreement. Although these agreements can provide benefits to debtors, it is important to understand what a reaffirmation agreement is, what it does, and when it may be necessary.
What is a Reaffirmation Agreement?
When a debtor files for bankruptcy, they often do so to eliminate, or discharge, debts. Bankruptcies allow obligators to obtain a fresh start financially. In certain cases, debtors may wish to pay certain debts they have accrued instead of discharging them in a bankruptcy. To do so, a debtor and a creditor must enter into an agreement called a reaffirmation agreement. These agreements essentially “lift” specified debts out of the bankruptcy process.
Reaffirmation agreements are only made during Chapter 7 bankruptcies. These agreements must be signed by both the debtor and the creditor once a debtor is able to prove to the Court that they are able to afford to pay the debt. If your budget shows that you are unable to afford to pay a debt, then you will not be able to enter into an agreement to do so.
When is a Reaffirmation Agreement a Good Idea?
The majority of debtors who utilize reaffirmation agreements do so to reaffirm debts that are secured by the property that they want to keep. The most common reaffirmation agreements are made around mortgages on homes or car loans.
These two items, in particular, are often highly treasured by debtors. Having a place to live and the means to get around are often essential to everyday life. For this reason, many debtors find reaffirmation agreements allow them to complete a bankruptcy without losing their transportation or homes.
Risks with Reaffirmation Agreements
It is crucial for buyers to understand that there are various risks associated with reaffirming loans. This is particularly true in cases surrounding auto loans. It is absolutely critical that you are able to cover the costs of the auto loan without any problems. Not being able to do so can lead to you losing the auto and having to pay the balance of the debt.
When debtors discover after having reaffirmed an auto loan that they cannot keep their vehicles, they end up surrendering them. The vehicles are then auctioned off for an amount far less than what is owed. When this occurs, the debtor will owe the balance that is due on the loan.
If you are Considering a Reaffirmation Agreement
If you are considering to reaffirm debts during your bankruptcy, it is crucial that you first consult with a reputable bankruptcy attorney to determine whether it would be the best option for your situation.
Our team at Kohn Rath Danon Lynch & Scharf, LLP has extensive experience helping debtors obtain the financial freedom they desire so they are better positioned to move forward. If you feel reaffirming some of your debts may be in your best interest, feel free to contact our bankruptcy attorneys in Vermont at (802) 482-2905 to schedule a free consultation to discuss legal options available for you.
Kohn Rath Danon Lynch & Scharf, LLP is a Vermont law firm located in the Town of Hinesburg, providing a broad and comprehensive array of legal services to our clients. Our attorneys have experience in many practice areas of the law.
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