When residents of Houston file a petition in bankruptcy, they expect to have most of their debts declared uncollectible. Why, then, would a person consider reaffirming any of those debts? The reasons are mostly practical, but the help to be obtained from this choice usually surprises most first-time bankruptcy filers.
Understanding the reaffirmation process
The reaffirmation process is relatively simple. If a debtor wants to reaffirm a debt rather than have it discharged, the debtor executes a reaffirmation agreement with the proper creditor, and the debt will be reaffirmed and exempt from discharge. The reaffirmation agreement must be signed by both the debtor and the creditor. If the debtor has an attorney, the attorney must also attest that he or she has advised the debtor about the legal effect of signing the agreement.
Why enter into a reaffirmation agreement?
Most debtors want to keep their automobile, and most debtors’ automobiles are subject to a security agreement. If the debt is discharged, the debtor will lose the car. The debtor can prevent this result by entering into a reaffirmation agreement with the creditor who holds the lien on the car. In the process of executing the reaffirmation agreement, the debtor can often negotiate more favorable terms with the creditor than were contained in the original security agreement. A debt cannot be reaffirmed if it is not current. Thus, the debtor must make all delinquent payments before the reaffirmation agreement can become effective.
Consulting an attorney
Any debtor who wants to reaffirm a debt must offer an explanation to the court about the reasons for the reaffirmation and must also acknowledge that the reaffirmation process has been explained and is understood. If the debtor has a lawyer, the lawyer must also acknowledge that the debtor understands the reaffirmation process and is willing to exempt the debt from discharge.
A knowledgeable bankruptcy lawyer can provide the necessary understanding of reaffirmation. An experienced attorney can also provide advice on the wisdom of reaffirming various debts before a reaffirmation agreement is submitted to the court for approval.