Reaffirmation

Full definition

When you file for Chapter 7 bankruptcy, most unsecured debts (credit cards, medical bills, personal loans) are discharged - you are no longer legally obligated to pay them. A reaffirmation agreement is a voluntary choice to exclude a specific debt from the discharge, agreeing to continue paying it as if bankruptcy had not occurred. Why would anyone reaffirm a debt? Vehicle loans: most people reaffirm a car loan to keep the vehicle. Without reaffirmation, the lender may repossess the car even if you are current on payments, because the discharge removed your personal liability. Secured personal loans: same logic - if you pledged collateral, reaffirmation lets you keep the collateral by maintaining the obligation. Reputational relationships: some debtors reaffirm certain debts to maintain relationships with specific creditors (a local bank or credit union they want to continue using). Risks of reaffirmation: If you reaffirm a debt and later default, the lender can sue you personally and pursue wage garnishment or bank levies despite the prior bankruptcy. Without reaffirmation, a discharged debt cannot result in a personal judgment against you (though the lender can repossess collateral if you stop paying). The decision to reaffirm is serious and permanent. Reaffirmation for unsecured personal loans: Reaffirming an unsecured personal loan (where there is no collateral at stake) is rarely advisable. You receive nothing in exchange (no collateral to keep) but remain on the hook for a debt that could have been discharged. Consult a bankruptcy attorney before reaffirming any debt. Approval process: Reaffirmation agreements must be filed with the bankruptcy court. If you are represented by an attorney, the attorney must certify the reaffirmation does not impose undue hardship. The bankruptcy judge may review and decline to approve reaffirmation agreements that appear harmful to the debtor.

• Collateral
• Judgment Lien