A reaffirmation agreement is a contract entered into during the pendency of  (usually) a Chapter 7 bankruptcy case which stops the particular debt from being discharged.  In other words, it creates an obligation to repay that debt after the bankruptcy case is completed.

Is reaffirming a debt a ever a good idea?  This is a tough question to answer.

Typically, only secured debts are reaffirmed in order to allow the debtor to retain the collateral.  Under the amendments to the Bankruptcy Code which took effect in 2005 (BAPCPA), secured creditors can treat the filing of the bankruptcy as a default and use that as a basis to repossess their collateral (such as an automobile) after the bankruptcy case is over, if applicable state law allows it.  As a result, the only sure way to keep a secured motor vehicle or other personal property is to enter into a reaffirmation agreement.

However, there is a big downside to reaffirmation agreements, namely that if you fail to make the required payments, not only can the creditor repossess its collateral, but the debtor will also owe whatever is left on the balance of the reaffirmed debt.  It is for this reason, among many others, that most attorneys advise against doing reaffirmation agreements.

There are a few saving graces, however.  First, as far as vehicles go, the majority of vehicle creditors will allow debtors to just stay current and maintain their payments without entering into a reaffirmation agreement.  Second, there is at lease an argument to be made for merely attempting a reaffirmation agreement and if the judge denies it, then the debtor should be able to retain the collateral and make payments because they have done all that is required of them by the bankruptcy code.

There may be reasons to reaffirm smaller debts, such as with credit unions in order to retain future credit privileges with them, but as always you need to get advice on your specific situation from your bankruptcy attorney.

First: There are numerous requirements to filing a bankruptcy case. One of them is that you must LIST ALL of your debts and ALL of your assets in your bankruptcy schedules.

Second: When you receive a discharge, you are discharged from any and all debts that are made dischargeable by the Bankruptcy Code (unless a creditor or other party successfully objects to the discharge).

Third: You can voluntarily repay any debt you want after the bankruptcy case is completed (in a Chapter 7 case, this is about 4 months after the case is filed, in Chapter 13, it’s 36-60+ months). See more on how the process works for each bankruptcy chapter.

Fourth: In a Chapter 7 case, you may, with the consent of the creditor and approval by the bankruptcy court, enter into a reaffirmation agreement. What this does is take the debt out of the bankruptcy and obligate you to the terms of the agreement (whatever they may be) despite the discharge you ultimately receive in the bankruptcy case. Reaffirmation agreements must be signed, executed, and filed with the court prior to the entry of discharge in your case.

The critical question to ask when trying to determine (or ask your attorney) whether you can discharge certain debts is: WHY do you want to do that (whatever “that” is)? In my experience, most debtors perceive that if they keep certain creditors off the bankruptcy, that they will magically be able to continue to have credit with them. Nothing could be further from the truth. In fact, with respect to credit card debt in particular, you have a much better chance of negotiating for a reaffirmation agreement with them (if that is your goal) to keep some credit on the card after your discharge is granted. Personally, I advise my clients strongly against doing that (because getting a new credit card after bankruptcy is about as difficult as finding mud after a rainstorm).

There is much more to say on this topic, such as how secured debts are handled in bankruptcy. If you have questions, you should schedule a consult with a bankruptcy attorney.