Reaffirmation of Debts and Bankruptcy
If you are going through the bankruptcy process, it is likely due to the fact you have a large amount of consumer debt. In many cases, creditors may attempt to ask you to sign reaffirmation agreements regarding the debt that you may owe them. Learn how signing these documents could create a legally binding agreement, that will remove your ability to discharge these types of debts in bankruptcy.
A reaffirmation agreement is given by a creditor to a debtor during the process of bankruptcy to “reaffirm” the debt owed. The reaffirmation agreement typically states that a debtor will be legally obligated to either part or all of the debt that could otherwise be eliminated and discharged within a bankruptcy. By signing a reaffirmation agreement, a debtor is essentially giving a creditor the right to collect the debt and waives the legal right to discharge the debt within their bankruptcy proceeding.
Times A Debtor Should Not Sign
All debtors should examine reaffirmations with some healthy skepticism. A debtor should not sign a reaffirmation under the following conditions:
- The debt is considered unsecured debt;
- The debt is a secured debt (such as a mortgage on a house), but the debtor is current on all payments;
- The debt is a secured debt, but the debtor has no interest in keeping the collateral (such as a boat or a car, etc.);
- The creditor has no way of proving that the debt is secured debt;
- Due to the number of missed payments, the likelihood of repossession is almost guaranteed.
Oftentimes, credit card companies will try to have debtors sign reaffirmation agreements that result in debtors paying for years on these debts when they could have been easily eliminated in bankruptcy.
Times A Debtor Should Sign
There are times, however, that a debtor should seriously consider signing a reaffirmation agreement. For example, some creditors will offer a debtor something in return for signing a reaffirmation agreement. Creditors often try to incentivize a debtor to keep the agreement in place. Some reasons a debtor may consider the incentives that a creditor offers could include the fact that 1) a debtor believes they could comfortably afford the payments after the bankruptcy is over, 2) the creditor allows the debtor to catch up on defaulted or missed payments in a reasonable manner, 3) or the debtor simply wants to keep the property and the bankruptcy court requires the signing of a reaffirmation agreement in order to do so.
Saying No and Cancelling A Reaffirmation Agreement
First, it is important that every debtor realizes that they have the right to refuse to sign a reaffirmation agreement or attempt to renegotiate any of its terms with a creditor. If a debtor signs a reaffirmation agreement and later regrets the decision, he or she has 60 days in which to cancel the reaffirmation agreement with the court. No reason is necessary, but the debtor must proactively notify the creditor in writing of the cancellation and the creditor will then have to return any payment made by the debtor.
Contact Us Today
Bankruptcy involves making a lot of decisions that are complex and legally challenging. Contact the West Palm Beach bankruptcy attorneys at Kelley, Fulton & Kaplan at 561-264-6850 for a free consultation and to help you through the bankruptcy process.