Reaffirmation Agreement in Bankruptcy

A reaffirmation agreement might be proposed by a creditor after you file for bankruptcy.  At your meeting of creditors your case trustee might tell you that a reaffirmation agreement is never required and you should confer with your bankruptcy attorney to decide if it is best for you.

What is a reaffirmation agreement?  In simplest terms, it is a contract you enter with a creditor, normally for a secured debt.  You agree that you will pay the obligation according to the terms of the reaffirmation agreement.  You also agree that the protection of the bankruptcy court will not extend to this debt after your discharge.

Is this good for you as a debtor in a bankruptcy case?  The best answer I can give you is…rarely.  With the bankruptcy law change in 2005 Congress showed a decided preference for secured debts to be reaffirmed.

Doesn’t this mean that such a decision will be in your best interest?  The best way to answer this is to remind you who paid for bankruptcy “reform”.  The primary backers of the bill were credit card companies and banks.  They worked for years to get these changes from a sympathetic republican controlled congress.  In 2005 all the cards finally fell into place.  If it is good for the people you owe money to, how can it benefit you?

I have seen banks and finance companies play lots of tricks to get you to sign a reaffirmation agreement.  Most recently a mortgage company told me that if my client does not reaffirm the mortgage, they will still take payments (what a shock), but not report those payments to the credit reporting agencies.

The best one I ever saw, which unfortunately the client fell for, involved a second mortgage company (notice a common thread here?) who would not send out statements anymore unless the clients reaffirmed.  The clients cried that they just HAD to have the statements, so over my objection and advice they signed the reaffirmation agreement.  Fast forward six years.  The clients are now divorced.  Neither chose to keep the home.  The second mortgage company is now garnishing the wife for a debt that would have been discharged in chapter 7 if not for the reaffirmation agreement.  Husband feels extreme guilt, but he was hurt on the job and no longer works.  Both are crying about being so silly to reaffirm a debt just to get a bill in the mail.

Reaffirming a debt will not enhance your credit.  Don’t be fooled.  There are other, better ways for this.  Given the chance to reaffirm, I would not.

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Bill Balena

Bill Balena is a Cleveland Area Bankruptcy attorney with an office in Elyria, Ohio. Bill represents consumers in Chapter 7 and Chapter 13 cases. He is a former city prosecutor, and an accomplished criminal trial attorney. Bill also defends drunk driving cases, as well as driving related drug offenses.

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