During the course of a bankruptcy proceeding, Debtors are quite often presented with the opportunity to sign a Reaffirmation Agreement. A Reaffirmation Agreement essentially takes a debt out of the bankruptcy discharge and “re-ups” the debt, so that whatever debt is involved does not “go through” the bankruptcy.
A typical reaffirmation agreement is in connection with a loan on a vehicle.
Reaffirmation agreements are obviously a great benefit to banks, credit unions, and other financial institutions because the obligation is still “good” on the financial institution’s books and records.
However, reaffirmation agreements are generally not in the best interest of debtors.
Think about it – why would you file bankruptcy and then take some debts out of the bankruptcy. It would be, for that particular debt, as if you didn’t file bankruptcy at all!
Suppose you own a 6-year-old vehicle worth $12,000.00 with a debt against the vehicle of $18,000.00.
If you signed a reaffirmation agreement, you would be required to continue paying on the car loan even if the car “died” six months after your bankruptcy was over.
Competent bankruptcy attorneys, except in unusual circumstances, generally advise against signing reaffirmation agreements.
Of course, every situation is different, and reaffirmation agreements are sometimes beneficial, or at least not too harmful.
As a general rule, however, I do not recommend signing reaffirmation agreements. There are other alternatives which can be discussed during the progress of a bankruptcy case.
This article is for information purposes only and is not to be considered or substituted as legal advice. The information in this article is based on North Carolina state laws in effect at the time of posting.