If you`re considering filing for bankruptcy, you might come across the term “reaffirmation agreement.” It`s an important legal document that can have a significant impact on your financial future, so understanding what it is and how it works is crucial. In this article, we`ll take a closer look at reaffirmation agreements and what they mean.
What is a reaffirmation agreement?
A reaffirmation agreement is a legal contract between a debtor and a creditor that allows the debtor to keep certain property that they would otherwise have to surrender in a bankruptcy case. Essentially, the debtor agrees to continue paying back a debt that would otherwise be discharged in the bankruptcy.
To create a reaffirmation agreement, the debtor and creditor must sign a new written agreement that replaces the original contract. The reaffirmation agreement must be filed with the bankruptcy court and approved by a judge before it becomes official.
Why would you want a reaffirmation agreement?
There are a few reasons why a debtor might want to enter into a reaffirmation agreement. First, if the debtor wants to keep a particular asset, such as a car or a house, they can enter into a reaffirmation agreement to continue making payments on the debt associated with that asset. Second, entering into a reaffirmation agreement can help the debtor rebuild their credit score by demonstrating to lenders that they are committed to repaying their debts.
However, there are also some risks associated with reaffirmation agreements. By agreeing to continue paying a debt, the debtor is taking on additional financial obligations that they may not be able to afford. If the debtor later falls behind on their payments, they could face legal action from the creditor.
In addition, if the debtor ultimately cannot afford to make the payments on a reaffirmed debt, they may not be able to discharge that debt in a future bankruptcy case. This could leave the debtor with a significant financial burden that they cannot escape.
How do you know if a reaffirmation agreement is right for you?
Deciding whether or not to enter into a reaffirmation agreement is a personal decision that depends on your individual financial circumstances. If you have a significant amount of debt that you cannot afford to pay back, a reaffirmation agreement may not be in your best interest. However, if you have a specific asset that you would like to keep and can afford to continue making payments on, a reaffirmation agreement may be a good option.
Before entering into a reaffirmation agreement, it`s important to consult with a qualified bankruptcy attorney. An attorney can help you understand the legal implications of entering into a reaffirmation agreement and can advise you on whether it`s the right choice for your situation.
Conclusion
A reaffirmation agreement is a legal contract between a debtor and a creditor that allows the debtor to keep certain property that they would otherwise have to surrender in a bankruptcy case. While entering into a reaffirmation agreement can have benefits, such as helping a debtor rebuild their credit score, it also comes with risks. Before signing a reaffirmation agreement, it`s important to carefully consider your financial circumstances and consult with a knowledgeable attorney.