What Is a Reaffirmation Agreement?

A reaffirmation agreement in bankruptcy applies to debts that are attached to an item of property that you own such as a home with a mortgage or a car that you financed. These debts are called “secured debts” because your lender has a security interest in that specific item of property. If payments on the loan aren’t kept up to date, then your lender has the right to take that item of property, by repossessing it or foreclosing on it.

When you file a Chapter 7 bankruptcy, all of your debts are discharged and eliminated including secured debts. This means that you are no longer required to pay those debts, and the lender cannot come after you for any money. However, your lenders holding secured interests still have a right to get their security interest back should you choose to stop paying them. You, as the Debtor, have the choice to “surrender” the property and stop making payments on it, or retain the property and continue making payments. If you choose to stop paying, and “surrender” the item of property, then your lender can only get that item of property back and it ends there. But if you prefer to keep the property and continue making payments, then that’s where a Reaffirmation Agreement may be requested by your lender.

If your intention is to keep the property and continue making the loan payments, then your lenders would prefer to keep things the way they were before you filed bankruptcy, and a reaffirmation agreement helps them do that. After you file your bankruptcy, your lenders can no longer contact you, they can no longer bill you, and they can no longer report on your credit. This may make things difficult for both you and the lender. By signing the reaffirmation agreement, you are basically “renewing” the loan, and turning it into a post-bankruptcy debt which can no longer be discharged. Once this is signed, your lenders can contact you, send you regular statements, and report your on-time payments to the credit bureaus so that you can rebuild and establish your credit after bankruptcy.