Reaffirmation Process | What is it to Reaffirm Debt

In Chapter 7 bankruptcy, you’re trying to get a fresh start. A big part of that fresh start is to eliminate debt, or discharge it. The reaffirmation process is where you say, no, I’d rather reaffirm debt in Chapter 7 and keep it. Most times you don’t want to. But there are times you’ll reaffirm debt, not because you want to, but because you have to.

What does it mean to reaffirm debt?

The point of bankruptcy is usually to discharge debt. This gets you out of owing it. When you reaffirm debt, you are saying, “no please, I want to keep owing it after bankruptcy.”

That sounds bad. Why on earth would I want to keep owing debt?

You don’t want to keep owing debt. Sometimes, you don’t have a choice.

So I don’t have a choice?

Well, you do, sort of. You get to choose if you want to keep the car — and its payments — or give back the car and not owe the payments. You explain that on the Statement of Intention.

So I can get rid of the car debt?

Yes, you can get rid of the car debt if you get rid of the auto. But otherwise, you owe it if you keep the vehicle. We can agree that you don’t get a free car or free house in bankruptcy. That car debt or mortgage loan isn’t going anywhere if you’re keeping the car or the house.

These go together…

• Keep the car = keep making the car payment and keep the debt
• Lose the car = stop making car payment and lose the debt

The same thing applies to houses and home loans.

But what about the reaffirmation agreement

If you’re keeping the car, you must do two things:

Firstly, you must make your car payments on time. Even if they stop billing you. You must pay that car payment each month, no matter what, until the contract is fulfilled.

Secondly, if the car finance company sends you a reaffirmation agreement, you must complete it and return it to them. This is one time you want to reaffirm debt.

If you do these two things, the auto finance company can’t take your vehicle.

But reaffirming debt is bad, why are you telling me to do it with a car?

It is bad to reaffirm debt. But with cars you have to if they send you a reaffirmation agreement.

What’s the impact of me signing a reaffirmation agreement?

Any contract you sign after filing bankruptcy if you break it you owe it. If you reaffirm a debt and the bankruptcy judge approves it, you will owe that debt no matter what after the bankruptcy. The bankruptcy won’t save you. Normally that’s not a problem with a car because you’re paying for it. But, if you ever default on that car loan, stop paying it, and lose the car to repossession, you will still owe the debt.

The auto finance company didn’t send me a reaffirmation agreement.

Then, congratulations, you don’t have to sign one. Any default of this car loan after the bankruptcy can’t be held against you after they repo the car.

So what’s the reaffirmation process?

The reaffirmation process varies state to state, probably even division to division, but generally, the reaffirmation process goes like this:

1. Car lender sends reaffirmation agreement to borrower
2. Borrower reaffirms debt by completing it and returning it to auto lender
3. Auto finance company files reaff agreement with the court
4. Bankruptcy judge wants to ask borrower about it and be sure you understand what you’re doing and can afford this car and are willing to get stuck with the balance if you ever break it
5. Bankruptcy judge signs order approving reaffirmation agreement
6. Borrower makes payment all the way until contract is fulfilled and keeps the car and gets the pink slip.

But I didn’t get a reaffirmation hearing before the bankruptcy judge

No big deal. Sometimes they’ll approve or deny the reaffirmation agreement without a hearing.

Oh no the judge disapproved my attempt to reaffirm debt

Congratulations you don’t have a hammer over your head on the loan balance if you ever default on the car loan. Just stay current on the payments and you’ll keep the car. This is the best possible outcome of the reaffirmation process.

I want a mortgage reaffirmation because my home lender sent me one

Why on earth would you reaffirm debt for a mortgage. Are you willing to wager $100,000 or more that you’ll always make the payment for the next twenty or thirty years every month? If you reaffirm mortgage debt and then lose the house, you may owe the mortgage anyway.

My mortgage company won’t report my ontime payments on my credit report or give me a refi and says my bankruptcy lawyer is a bad person because they wouldn’t let me reaffirm my mortgage.

Your bankruptcy attorney saved you from reaffirming debt on a massive loan with an uncertain future promising you’ll pay a loan of probably over a quarter-million dollars no matter what. Your home lender wants you to sign it. Who is the evil one here.

You explain things really well. How do I meet with you about bankruptcy?

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