What is reaffirmation of debts?

You may reaffirm a debt, if the applicable creditor is willing to let you do it. By reaffirming a debt, you promise to pay the creditors the reaffirmed part of the debt, and this is taken out of the bankruptcy schedules. It is good as long as you keep your end of the bargain and keep sending monthly payment to your creditors. However, if you later default, the creditor can repossess the property and the remaining balance will not be discharged.

Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your best interest. If these steps are not completed, the reaffirmation agreement is not effective, even though know you have signed it. You can also rescind your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation is filed with the court, whichever occurs later.

If a debtor reaffirms a debt, the creditor must inform the debtor as to the amount of debt reaffirmed, the applicable interest rates, when payment will begin, and filing requirements with the court.
Reaffirmation of debts other than home mortgages must be approved by the debtor’s lawyer or the court.
Chapter 7 debtors must redeem or reaffirm promptly, within forty-five days of the first creditors’ meeting; if they don’t meet this deadline, they can lose the property. Reaffirmation is not always your best interest, especially when the reaffirmed debt relates to property worth far less than the debt being reaffirmed. Most reaffirmation relates to mortgage loans and loans for personal property that is especially valued by the debtor like a car or a boat.

However a reaffirmation negotiation can be a good opportunity to renegotiate the loan, especially on personal property that has been depreciated. If you want to retain items that are worth less than the secured debt against them, then either redemption or a chapter 13 reorganization may make more senses. After discharge, it is too late to reaffirm, and the creditors may repossess the property, but cannot collect the balance due.

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