A reaffirmation agreement is an agreement a debtor enters into with a secured creditor to agree to pay a debt in return for the ability to keep the merchandise securing the debt. These agreements are standard in bankruptcy proceedings; however, the effect of these agreements makes one wonder why a debtor would agree to continue to saddle themselves with debt while in a bankruptcy proceeding. There are certain situations where a debtor basically has no choice but to sign the agreement.
After the Code was amended in 2005, a debtor must sign a reaffirmation agreement on their secured debts or risk losing the security. Prior to the enactment, if a debtor did not reaffirm a secured debt, but maintained the payments, the security would not be subject to repossession. This is not the case today. So, in order to maintain a homestead with a mortgage, the debtor must sign a reaffirmation agreement with the mortgage company. But what happens when the mortgage is more than what the house is worth? Is it in the debtor's best interest to reaffirm this debt?
If you owe significantly more than the property is worth, it may be wise for you to surrender the collateral and not reaffirm the merchandise. After all, you are filing a bankruptcy that will discharge your debts, so why incur more debt? Furthermore, you cannot file bankruptcy again for 8 years so if you remain liable for a debt, it will stay with you for a long time. The reality now is that if you do not reaffirm the debt, but continue to make the payments, the secured creditors will permit the debtor to keep the collateral. However, the debtor must make careful plans to ensure that the collateral is paid timely and in full with a release at the end of term. The creditors are prohibited from sending statements to the debtors as these are requests for payment of a debt that has been legally discharged. Further, there will be no positive payment information put on a debtor's credit report post bankruptcy to help re-establish credit.
There are situations on the other side where it is beneficial to sign a reaffirmation agreement. If you are in a position to maintain your payments, then signing the reaffirmation agreement will assist you in rebuilding your credit after a bankruptcy. Many times, it will be beneficial to reaffirm your vehicles or maybe some computer equipment or furniture that were not huge purchases.
Ms. Jacobs is the founding attorney of Andrea R. Jacobs, P.A. located in Coral Springs, Florida. Her practice focuses on immigration law and bankruptcy law. Ms. Jacobs is a member of the Florida Bar. She is also a member of The United States District Court for The Southern District of Florida.
Ms. Jacobs received her Bachelor of Arts, cum laude, from The Honors College at the University of Miami where she majored in English with a minor in Business Administration. Ms. Jacobs then attended the University of Florida, College of Law in Gainesville, Florida where her studies included curriculum in the fields of corporate, estate, family law and tax law. Ms. Jacobs received her degree of Doctor of Jurisprudence in 1990.
Ms. Jacobs can be reached at andrea@arjlaw.com or (800)424-7745.
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