When residents of Indiana contemplate bankruptcy, they usually look forward to the cancellation or restructuring of a large part of their financial load. To the surprise of many debtors, the Bankruptcy Code contains a provision that allows the debtor to reaffirm the existence of a debt and to continue to make payments on the obligation. Understanding how and when to use a reaffirmation agreement can provide significant help in preparing the reorganization agreement required by Chapter 13.
The basics of reaffirmation agreements
In its simplest terms, a reaffirmation agreement is a written contract between the debtor and a creditor in which the debtor agrees to pay a debt which would otherwise be dischargeable. All bankruptcy courts require the use of a specific written form to document the agreement and its acceptance by the debtor and the creditor. The court will review the agreement and either approve it or reject it.
The benefit of a reaffirmation agreement
A reaffirmation agreement can provide significant relief to a debtor who borrowed money to buy a piece of equipment or an automobile for a business. If that debt is discharged, the creditor will most likely repossess the collateral. If the debtor and creditor work out a reaffirmation agreement, the debtor will be allowed to retain possession of the collateral. Also, the terms of payment may be altered to extend the deadline for satisfaction of the debt or reduce the amount of regular payments.
The mechanics of execution and filing
The reaffirmation agreement must be filed with the court before it becomes effective. The agreement can be rescinded by either party at any time before the order for discharge is issued or within 60 days after the agreement is filed with the court, whichever date is the later. The debtor must obtain the signature of his or her attorney on the agreement or complete that portion of the form that states that the debtor has consulted an attorney before signing the agreement. If the form as submitted to the court does not bear an attorney’s signature, the court may hold a hearing to determine if the form serves the best interests of the debtor.
As this requirement makes clear, a debtor who is considering entering into a reaffirmation agreement should consult an experienced bankruptcy attorney before signing the agreement.