Reaffirmation Agreements

Business Team Signing Contract

What is a reaffirmation agreement?

A reaffirmation agreement is a contact prepared after filing bankruptcy that deals with a debt you owed at the time of filing.  Most reaffirmation agreements in Arizona concern automobile loans.  By signing a reaffirmation agreement you waive the right to discharge the debt.

Consequently, if you default on a reaffirmed debt, the creditor may possess the collateral, sell the collateral, and pursue you for any amount that remains due, if any.  (loan balance minus sale price)  For example, if you reaffirm a car loan with a balance of $10,000 and the vehicle is sold at auction for $5,000 after it was repossessed, the car lender may sue you for the remaining $5,000 due.

The reaffirmation agreement is sometimes negotiable.  Under certain circumstances the car lender may reduce the principal balance, lower the payments, or lower the interest rate.

Am I required to sign a reaffirmation agreement?

If you wish to keep the personal property securing the loan the bankruptcy code requires you to sign a reaffirmation agreement within 30 days of the 341 Meeting of Creditors.  If a reaffirmation agreement is not signed within 30 days the lender may repossess the collateral.  Generally reaffirmation agreements are not signed for mortgages and unsecured debt (e.g. credit cards).

What happens if the reaffirmation agreement is denied?

If your reaffirmation agreement creates an “undue hardship”, (expenses greater than income) the bankruptcy court will generally set a hearing to consider approval.  If the loan is with a credit union there is never a presumption of undue hardship.

In Arizona a judge may deny your reaffirmation agreement and enter an order restricting your finance company from repossessing your vehicle as long as you remain current on the loan.  The benefit of having your reaffirmation agreement denied is that the debt is discharged.  This means that if you default on the loan or no longer wish to retain the personal property you must only surrender it.  You cannot be held liable for any deficiency.

On the other hand, if your reaffirmation agreement is denied the lender will most likely not report your  positive payments to the credit bureaus.  Therefore, you in order to improve your credit score you should be prepared to have to prove to the credit bureaus that you made timely payments.