Attorney at Law
Debts I Reaffirmed in Bankruptcy
If you have a home loan or car loan at the time you file bankruptcy, you should consider signing what is called a "reaffirmation agreement" as part of your bankruptcy. The reaffirmation agreement basically undoes the bankruptcy with respect to that one creditor, and allows that creditor to continue reporting positive payment history on the loan after the bankruptcy is over. If you don't sign a reaffirmation agreement most creditors will still allow you to keep your home or car as long as you continue paying on it, but they are legally prohibited from putting your good behavior on your credit report.
I generally recommend reaffirmation as a powerful way to start rebuilding your credit after bankruptcy. However, it can also backfire. The most common example is where a client signs a reaffirmation agreement on their car note then immediately experiences an income reduction. They stop making their car payments because they cannot afford them, the car gets repossessed and sold at auction, and the creditor then sues them for the balance remaining on the loan. Now the client has a court judgment against them that can be used to garnish their wages and/or bank account, and they cannot file a Chapter 7 bankruptcy for another 8 years.
Because of possibilities like these, the court will not allow just anyone to sign a reaffirmation agreement. The court wants to protect people from signing reaffirmation agreements if it looks like those agreements are likely to get people right back into the kind of trouble they just got out of. Therefore, if you want to sign a reaffirmation agreement to help rebuild your credit, the court will hold a special reaffirmation hearing where it will ask us to prove that you can afford to make the payments you are proposing to pay without causing you to get behind on other obligations. If the evidence is not there to prove to the court that you can afford those payments, it will not approve the reaffirmation agreement, and the reaffirmation agreement will be canceled.