Reaffirmation Of A Debt By A Bankruptcy Petitioner

In the article What will happen after I file a bankruptcy petition? I wrote briefly about what takes place at the Meeting of Creditors in a Chapter 7 bankruptcy.

At the Meeting of Creditors, after the trustee calls the bankruptcy petitioner's name and asks questions regarding the case, the trustee will then ask if there are any creditors (people owed money by the bankruptcy petitioner) in attendance who want to ask questions of the bankruptcy debtor.

Creditors may ask relevant questions about the debt owed by the petitioner/debtor to the creditor. For example, say the bankruptcy petitioner owes $300 to Sears for the purchase of a T.V. on petitioner's Sears credit card. A representative from Sears may attend the meeting of the creditors and ask the bankruptcy petitioner where the T.V. is, whether the petitioner wants to return the T.V. to Sears or agree to keep paying for the T.V. (perhaps at a new, discounted rate). (This is all assuming that the Sears credit card agreement provided a security interest in all merchandise bought on credit until paid in full.)

If the bankruptcy petitioner wants to keep paying on the T.V. and keep it, Sears will require the bankruptcy petitioner to sign a "Reaffirmation Agreement."

The Reaffirmation Agreement must be filed with the bankruptcy court prior to the date of discharge of debts in order for it to be enforceable. The reaffirmation of a debt is the voluntary agreement by the debtor to pay off a creditor even thought the debt is dischargeable in the bankruptcy proceeding.

The Reaffirmation Agreement must contain a declaration by the debtor's attorney or be approved by the Bankruptcy Court.

Although reaffirmation should usually be avoided, especially in the case of unsecured debt (debt where there is no collateral), there are some instances when the debtor may find it advantageous to reaffirm a debt before it is discharged. Usually a debt is reaffirmed only when there is a secured creditor and the debtor wants to keep the collateral, as in the Sears example, above.

A similar example would be a debtor who may own an automobile which the debtor purchased on credit. When the debtor borrowed the money to purchase the auto, the creditor took a security interest (a lien) in the auto. After the debtor files for bankruptcy, the secured creditor may be able to repossess the car and sell it to satisfy the amount still remaining on the loan. If the auto has substantial value, the debtor may wish to reaffirm the debt to the secured creditor in order to keep it.

In deciding whether to reaffirm a debt, it should be kept in mind that if you reaffirm a debt and later fail to make the payments, the creditor can obtain a judgment against you which will allow the creditor to look to your other assets or garnish your wages to obtain repayment. Moreover, you cannot later discharge the debt because an individual cannot file bankruptcy again for another 6 years.

Of course, the information in this article is general only. If you have more questions, I suggest you consult an attorney that practices bankruptcy.