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What is a reaffirmation agreement?


In the event of bankruptcy, signing a reaffirmation agreement can help you keep certain assets as you agree to repay the debt. In most cases, people sign these agreements to protect their home or car. The hardest part is that you will still have debts even if you have completed the bankruptcy process. While this is a great tool for protecting assets, make sure you know what you are signing before entering into the deal for the best results.

Understanding the Basics of the Reaffirmation Agreement

In the event of bankruptcy, your objective is to free yourself from part or all of your debts in order to regain a solid financial footing. Typically, people file for bankruptcy when they have too much debt and their debt makes it impossible to meet their daily needs and is insurmountable.

But in some cases, you want to reaffirm certain debts by agreeing to repay what you owe in exchange for keeping the property. This is called a reaffirmation agreement.

A common example of reaffirmation agreements at work is when a person filing for bankruptcy chooses to keep their car. This essential part of how you get to work and the grocery store will help you thrive once the bankruptcy process is over. When you reaffirm this debt, you will have the tools you need to live or care for your dependents.

This voluntary, legally binding agreement provides the opportunity to keep certain parts of your debt while others are discharged. In the agreement you will find many crucial details.

  • Amount of debt you are reaffirming
  • Refund conditions
  • The annual effective rate of debt
  • Collateral details (such as car make, model and value)

How Reaffirmation Agreements Work

The reaffirmation of bankruptcy takes place within 60 days following the first meeting of creditors. You will need to submit the agreement and wait for acceptance from the creditor. While this is a crucial first step, the court must also approve the reaffirmation, which only happens when your debt discharge is approved.

You may opt out of these agreements within 60 days after you file the reaffirmation or 60 days after your debt is discharged, whichever is later. However, this is still a serious deal that you should review carefully to see if it is the right decision for you based on your income and any debt that is not eligible for discharge in bankruptcy. , such as student loans or taxes.

If everyone agrees to the reaffirmation, you will have the option to keep the warranty and avoid repossession or foreclosure. In some cases, this helps you maintain some credit through the bankruptcy process and can help you maintain some sense of normalcy after the significant disruption and changes that bankruptcy can cause.

On the other hand, maintaining debt can reduce the effectiveness of filing for bankruptcy. There is a limit to the number of times you can file for bankruptcy in your lifetime, which means you need to be fairly certain that you can repay the reconfirmed loan to avoid this process in the future.

Advantages and disadvantages of signing a reaffirmation agreement

Since this is a legally binding agreement, take the time to consider what you are agreeing to and the pros and cons of retaining the debt.

  • Helps maintain crucial collateral
  • Can preserve your credit score to some extent
  • It may be easier to obtain future lines of credit once you qualify.
  • Some creditors offer better interest rates if you sign a reaffirmation agreement

  • This could cause you to find yourself financially overwhelmed again, which is something you’re trying to avoid by getting out of debt.
  • You could face deficiency judgments later or even lose your home to foreclosure without getting any financial compensation for the payments you’ve made between now and then.

Factors to consider before signing a reaffirmation agreement

For those who file for bankruptcy, the ability to maintain some semblance of normalcy and comfort is very appealing. But before you agree to keep your home, vehicle, or other asset through a reaffirmation agreement, consider these factors that can help you determine if the agreement is right for you.

  1. Can you afford the payments? Be honest and realistic about payments based on your current household income. Create a budget to see if the debt is reasonable for you.
  2. What is the share of equity in assets? Maybe you’ve been paying off your mortgage for 20 years and don’t want to lose the equity you’ve built in the home. Or, you could be a third of the way through your car payment and owe less than the car is worth, making it a smart financial decision.
  3. What is the value of the asset? Even though it may have sentimental value to you, try to ignore that fact for a while and honestly assess its value. Maybe you’re in a home in a market that has experienced a downturn and you now owe more than it’s worth. Or maybe you took out a second mortgage when things got tough and you were behind on your payments. Maybe the interest on your car loan is so high that it now exceeds the value of the car. This is your chance to leave that bad debt behind and start again, but you need to be realistic about the value of the asset in relation to the payments you’ll make on it.
  4. How disruptive will the loss of the asset be? If you plan to own your only car, you might consider keeping the loan. This way, you can still get to work and start rebuilding your financial future. It will be difficult to make large purchases over the next few years as you go through the bankruptcy process and rebuild your credit. Reaffirming the debt might be the most practical solution to help you maintain your lifestyle.

How to Request a Reaffirmation Agreement

Now that you know what a reaffirmation agreement is, you are ready to take steps to maintain your security. Here’s what you need to do.

  1. File for bankruptcy.
  2. Work with your attorney to draft and negotiate a reaffirmation agreement.
  3. Submit a statement of intent to the court and the lender.
  4. Attend the reaffirmation hearing where the judge will review it.
  5. Once you and the lender reach an agreement, you will both sign it.
  6. The courts file the agreement.

A reaffirmation agreement is a tool during bankruptcy proceedings that can help you retain certain assets that would be too disruptive to lose. If you use the tool wisely, it can help you return to a place of financial security and stability more quickly and with less disruption to your daily life.

Frequently asked questions


Reaffirmation allows borrowers to keep the asset despite filing for bankruptcy and is reported to credit reporting agencies, which can help the borrower maintain a decent credit score.


If you do not sign a reaffirmation agreement, this debt will become part of your bankruptcy proceeding and will be discharged and the assets will revert to the creditor.


Bankruptcy individuals who wish to retain an asset must agree to a reaffirmation agreement. The most common assets that people keep are cars and houses.



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