Debtors often have property subject to a lien when they file for bankruptcy.  In order to keep the property debtors can often sign a reaffirmation agreement.  A reaffirmation agreement is a new contract between the debtor and secured lender.   The contract is the debtor’s promise to continue making future payments in exchange for the lender’s promise to not repossess.  Reaffirmation agreements must be approved by the bankruptcy court.  Bankruptcy Rules reqire reaffirmation agreements be filed within 60 days after the first meeting of creditors.

The decision to sign a reaffirmation agreement is unique to each debtor.  It should be based on the debtor’s personal and financial circumstances.  In determining whether to sign a reaffirmation agreement, the debtor should ask two questions.  How important is the property?  Will it be possible for the debtor to continue making payments on the property in the future?

It is important for the debtor to ask these questions because if the debtor defaults on a future payment, the reaffirmation agreement gives the secured lender the legal right to repossess.  This is true even though a discharge in bankruptcy prohibits future collection efforts by all creditors listed in the bankruptcy petition.  The reason that collection efforts are not stayed is because reaffirmed debts are not discharged in the bankruptcy.  Therefore, the usual protections afforded by the automatic stay in bankruptcy are not present in the context of reaffirmation agreements because in the event of a default by the debtor, the creditor may lawfully institute collection efforts.

Before signing a reaffirmation agreement, the debtor should consult with its’ attorney regarding the terms of the new agreement.  The attorney can advise the debtor whether the reaffirmation agreement is in the best interests of the debtor.  Nevertheless, in the end, the decision to reaffirm the debt is the debtors to make.   Even if the debtor signs the reaffirmation agreement and later changes its’ mind, it has a window of time in which to revoke the agreement.  The debtor can revoke up to 60 days after signing the agreement or up to the date of discharge, whichever occurs first.  Thereafter, the debtor must continue making payments to the secured lender or face potential repossession.