A reaffirmation agreement is a legal contract between a debtor and a creditor in which the debtor agrees to repay a debt that would otherwise be discharged in a bankruptcy case. This is a voluntary agreement that is typically used for secured debts, such as a car loan or a mortgage.
The purpose of a reaffirmation agreement is to allow a debtor to keep their property secured by a debt and to continue making payments on the debt after bankruptcy. If a debtor does not sign a reaffirmation agreement, the debt would be discharged in bankruptcy, and the creditor would no longer have the legal right to collect on the debt.
Reaffirmation agreements are governed by federal bankruptcy law and must meet specific requirements to be enforceable. The debtor must sign the agreement before the bankruptcy is discharged, and the agreement must be filed with the bankruptcy court.
There are several advantages to signing a reaffirmation agreement. The debtor will be able to keep their property secured by the debt, and the creditor will continue to report the payments to credit bureaus, which can help improve the debtor`s credit score over time. Additionally, signing a reaffirmation agreement can help a debtor avoid the risk of repossession or foreclosure that could occur if the debt were not reaffirmed.
However, there are also some risks associated with signing a reaffirmation agreement. If the debtor is unable to make payments on the debt, they could be subject to collection efforts by the creditor, including lawsuits and wage garnishment. Additionally, if the debtor signs a reaffirmation agreement for a debt that they cannot afford to repay, they could end up in a worse financial situation than if they had not reaffirmed the debt.
In summary, a reaffirmation agreement is a legal agreement between a debtor and a creditor that allows the debtor to keep their property secured by a debt and continue making payments on the debt after bankruptcy. While there are some benefits to signing a reaffirmation agreement, there are also risks that should be carefully considered before making a decision. It is advisable for debtors to consult with a bankruptcy attorney before signing a reaffirmation agreement to ensure that it is in their best interest.