The Reaffirmation Agreement: Need one?

Today we are going to talk about the reaffirmation process in Chapter 7. The reaffirmation process is a useful and widely used tool for debtors to keep and continue to pay for houses, cars, furniture, electronics and co-signed debts. It has to make sense in the long run. Reaffirmation will work even if you have little or no equity in the collateral that secures the debt, if the creditor agrees to reaffirm and if the reaffirmation is in the debtor’s “best interest.” Under this you can safeguard lots of necessary things for you which can otherwise be taken by the trustee.

Under the current law, debtor’s attorneys must sign off on reaffirmation agreements and assert that the debtors have read over the agreement, that they have reviewed the debtor’s budget and that in their opinion this reaffirmation is truly in the debtor’s best interest.

The debtor’s budget must not be negative after payment of the reaffirmed debt. In other words, a debtor who clears $2,000 per month after taxes spends $1,800 per month for housing, food, insurance, transportation and other essentials, cannot reaffirm a car loan that calls for a $350 per month payment.
If I signed off on a reaffirmation that left my client $150 negative each month, I would expect that an alert bankruptcy judge would not sign the reaffirmation and that he would set a court date to ask me to appear to explain how such an unbalanced reaffirmation was in my client’s best interest.

Reaffirmation agreement has to make sense in the long run. For instance, is it a good idea to reaffirm a car which may malfunction and the monthly installments are high after few months because of the high maintenance bills and other ancillary expenses. One has to balance the emotions with the long term feasibility of reaffirmation agreements.

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