Reaffirming Debts in Chapter 7

 

Ever wonder how someone can file a Chapter 7 case, and keep their home or vehicles? The answer is that the law allows a debtor to “reaffirm” debts so that they are unaffected by the discharge. Typically, debtors will reaffirm mortgage indebtedness on their principle residence, and often on one or more vehicles. If the debt is properly reaffirmed, then the debt survives bankruptcy and you owe it, and can be sued on it. Reaffirmation is strictly voluntary. You cannot be compelled to reaffirm any indebtedness.

Briefly stated, here are the steps you must follow in order to reaffirm an indebtedness:

  • There are forms for reaffirmation readily available, disclosing all of the necessary terms such as balance, interest rate, payment date, maturity date and so forth. You need to sign it, and the creditor needs to sign it. BUT FIRST, consider carefully the advantages and the disadvantages. You will owe the debt as if your bankruptcy was never filed.

  • Once properly executed, the agreement is filed with the court. It must be filed before entry of your discharge, and not later than sixty days following your initial Meeting of Creditors. These events and deadlines may be extended by the court, provided the request is made before the time as expired.

  • Generally, your reaffirmation agreement becomes effective immediately upon filing if you were represented by an attorney and the attorney completes the certification provided in the form of the agreement. If the attorney is unable to do so, or you are not represented, the court will set a hearing. In our District, those hearings are usually telephonic. If the court finds that entering into the agreement is unnecessary or creates an undue hardship, it will not approve the agreement.

  • If the court sets a reaffirmation agreement for hearing, all debtors should be present in person or by telephone if permitted.

IMPORTANT: The law expressly provides that you may rescind any reaffirmation agreement (1) before your discharge enters, or (2) within sixty days from the date the reaffirmation agreement was filed with the court, whichever is later. Don’t wait until the last minute! If you let the time past, the agreement becomes binding and you now owe the debt.