What you should know about bankruptcy reaffirmation agreements

If people filing bankruptcy want to still keep paying off certain debt they can file a reaffirmation agreement.

Bankruptcy can absolve people in Tennessee of their responsibility to pay certain debts. These debts often include secured loans for vehicles and homes. If the person filing for bankruptcy does not want a car loan or mortgage to be discharged, then the person has the choice of filing what is known as a reaffirmation agreement.

What is a reaffirmation agreement?

A reaffirmation agreement is essentially a document that says the person who owes on the loan still intends to pay on that loan after the bankruptcy is granted. Cornell University Law School's Legal Information Institute points out that along with the agreement itself, the person submitting the agreement must also give information about his or her expenses and current income. If the person is intending to keep more than one loan, then he or she needs to file a reaffirmation agreement for each debt. Once the meeting of creditors has been scheduled, then there is a 60-day timeline that goes into effect.

Will the reaffirmation cause undue hardship?

As difficult as it is for people to say goodbye to a home or other asset, it is important for them to look at whether the agreement will cause them undue hardship. If the person filing for bankruptcy is doing so with the assistance of an attorney, The United States Department of Justice states that it is the responsibility of the attorney to help that person evaluate and understand the impact of that decision.

Two factors that people should carefully think about include what their financial situation will be after the bankruptcy and whether the debt that they are reaffirming is a want or a need. If they do not make a large income and they have debt that cannot be discharged through bankruptcy, like a student loan, then reaffirming a mortgage on a home may not be the best idea. However, if their debt after bankruptcy is small and they make a good living, then it could probably be shown that keeping the mortgage would not place them in a precarious situation.

What happens if the reaffirmation agreement cannot be kept?

The New York City Bar's Justice Center points out that the consequences for failing to honor the reaffirmation agreement can be significant. This is due to the fact that the debt can no longer be discharged through bankruptcy. Therefore, the person who owes the debt cannot file a petition to discharge it until eight years after the debt was affirmed.

The creditor, however, has the legal right to file a lawsuit against the person for the amount of the debt. The person could also find the asset repossessed by the lender.

The choices made during the bankruptcy process can have long-term effects on people's lives. Therefore, they may want to talk with an experienced attorney.