What is a Reaffirmation Agreement?

A:

One of the options people have in bankruptcy regarding car loans is to "reaffirm" the obligation. This means that the loan debt itself will not be discharged (wiped out) by the bankruptcy, and you will continue to owe it until it is paid off. This is memorialized in a document filed with the bankruptcy court called a Reaffirmation Agreement.

Under the bankruptcy code, you have 45 days from the first date you are scheduled to meet with the trustee in your case to sign and return this document to the creditor. It then has to be filed with the court within 60 days of that trustee meeting. Even after all of this, you can still change your mind by sending a rescision letter to the bank within 60 days of filing the agreement or before your discharge is issued, whichever is later.

If you are deficit spending according to the income and expense schedules in your bankruptcy petition (i.e. you spend more than you earn), there is a presumption of undue hardship, which raises a concern about whether you can truly afford the payment. This presumption can be overcome if you can show to the bankruptcy court why you still feel you can afford it, either through an explanation attached to the Agreement or through your testimony at a Reaffirmation Hearing. Reaffirming a car loan isn't always the best option, and you need to consider several factors before making this decision. You should also consult with my office to see if is the right choice for you.

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