Chapter 7
Reaffirmation Process
If you wish to honor a debt to a specific creditor by paying it back in full, it is said that you intend to reaffirm your debt to that creditor. The Reaffirmation Process is completely voluntary and it cannot take place unless both you and the creditor agree to the reaffirmation. The reaffirmation of a debt prevents that debt from being discharged or wiped out in your bankruptcy. Therefore, you must rarely, if ever, reaffirm debts unless absolutely necessary. The process works this way:
- The creditors prepare and send the reaffirmation agreements to us. The creditors prepare the reaffirmation agreements because the vital information such as the debt amount, the amount of unpaid accrued interest, the interest rate, the monthly payment, etc., are maintained in most creditors’ ordinary course of business, and these kinds of information are accessable to them easily and quickly. Also, unless the creditor wishes to enter into a reaffirmation agreement it cannot be forced to do so.
- Once we receive a reaffirmation agreement from a creditor, we will forward it to you with our recommendation as to whether you should or should not reaffirm the debt.
- You will review the reaffirmation agreement, make sure that you agree with the accuracy of the dollar figures and its terms. If you do not wish to reaffirm, you will just keep the reafirmation agreement for your record. If you wish to reaffirm, you will fill in the blanks where needed, sign the reaffirmation agreement, and mail it back to us.
- If we determine that the reaffirmation of the debt will not impose ”undue hardship” on you or your dependents, we will sign the reaffirmation agreement and will forward it to the creditor. Then, the creditor will file the reaffirmation agreement with the bankruptcy court. However, if we determine that the reaffirmation agreement will cause you or your dependents “undue hardship,” we will refuse to sign the reaffirmation agreement. Without our signature, the only way a debt can be reaffirmed is if the bankruptcy court determines that reaffirmation is proper under the circumstances.
- A reaffirmation must be filed with the bankruptcy court before your discharge date, if not, it is considered invalid.
- You have the right to change your mind after you have reaffirmed a debt; this is also known as the right to rescind. You may rescind or cancel a reaffirmation agreement by the later date of (i) your discharge date, or (ii) 60 days after the reaffirmation agreement has been filed with the bankruptcy court.
Reaffirmation of Unsecured Debts: It is almost impossible to argue that the reaffiramtion of an unsecured debt is in your best interest and will not cause an undue hardship on you or your dependents. Afterall, your discharge will relieve you of repaying your unsecured debts. Also, if you wish to repay an unsecured debt, you may do so without reaffirming the debt.
Reaffirmation of Secured Debts: In Chapter 7, if you want to keep a collateral you will have to pay for it. In considering to reaffirm a secured debt, you should determine (1) whether the collateral is absolutely necessary, and (2) whether the collateral can be replaced in the near future under acceptable terms. You should consider reaffirming the debt only if your answers are: (1) Yes, and (2) No, respectively.
The Redemption Option: You can avoid entering into a reaffirmation agreement on personal property if you have the financial ability to redeem a collateral by paying its fair market value in a lump sum. For example, assume you financed the purchase of a large flat screen T.V. for $8,000.00, you still owe $6,500.00 on it, and your monthly payments are $250.00 each. Also, assume that your T.V. now has a fair market value of $4,000.00 only. If you file Chapter 7 bankruptcy and decide to keep the T.V., you must either reaffirm the debt or redeem the T.V. If you reaffirm your debt, you will have to pay the creditor the $6,500.00 you owe plus interest at $250.00 per months until paid in full. If you redeem the T.V., you will keep it by paying the creditor the sum of $4,000.00 in lump sum and the $2,500.00 balance will be discharged.