Most residents of western Pennsylvania look upon bankruptcy as a means of discharging debts that they are unable to pay. Why would a person who files a Chapter 7 petition to discharge all debts consider signing an agreement that reinstates—or reaffirms—a debt that can be permanently canceled? The answer relates directly to the kind of loan involved. Is the loan secured by a lien or pledge of collateral, or is the debt unsecured? If the debt is secured, a reaffirmation agreement may let the debtor retain possession of the collateral.
What does a reaffirmation agreement accomplish?
A reaffirmation agreement is a contract in which the debtor agrees to repay the loan rather than seek to have it discharged. The creditor also agrees to refrain from attaching or repossessing the collateral if the debtor abides by the terms of the new contract.
Thus, if the debtor needs an automobile to transact business or earn a living, say, as a salesperson, a reaffirmation agreement may allow the debtor to retain possession of the car if the terms of the reaffirmation agreement are satisfactory. A reaffirmation agreement does not cancel the security interest held by the creditor; rather, the date on which repossession can be used as a remedy is postponed.
Obtaining a reaffirmation agreement
To obtain a reaffirmation agreement, the debtor completes a bankruptcy court form called a “Statement of Intent,” which sets forth the amount of debt that is being reaffirmed, the new repayment terms and details about the collateral. To be effective, a reaffirmation agreement must be signed and filed with the court no later than 60 days after the first meeting of creditors. The debtor can revoke the reaffirmation agreement by filing a notice with the court within 60 days from the filing of the agreement with the court.
After the reaffirmation agreement is signed and submitted to the court, the judge may hold a hearing to determine if the agreement serves the best interests of both the debtor and the creditor.
Who can draft the reaffirmation agreement?
Because a reaffirmation agreement is a binding legal contract, most debtors who file reaffirmation agreements rely on a bankruptcy attorney for assistance in drafting the document.