What is a reaffirmation agreement in Chapter 13 Bankruptcy?
A reaffirmation agreement in Chapter 13 Bankruptcy is a voluntary contract between a debtor and a creditor in which the debtor agrees to continue making payments on a debt that would otherwise be discharged in the bankruptcy. This agreement allows the debtor to keep possession of collateral securing the debt, such as an automobile or a house. The creditor agrees to allow the debtor to keep possession of the collateral, even if the debtor defaults on the loan. The reaffirmation agreement must be approved by the bankruptcy court. The court will review the agreement to make sure that it is in the best interest of the debtor and that all terms of the agreement are fair and reasonable. To be approved, the debtor must be able to demonstrate that he or she can afford to make the payments and that entering into the agreement will not cause an undue hardship. Reaffirmation agreements are not required for Chapter 13 bankruptcies. They may be beneficial in the sense that they allow a debtor to keep the collateral, but the debtor could lose the collateral if the agreement is not approved or if the debtor defaults on the loan. The debtor should consult with a qualified attorney before entering into an agreement to make sure they fully understand the consequences.
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