What is a reaffirmation agreement and how does it work?

A reaffirmation agreement is an agreement providing that you will pay a creditor's debt even though the debt would otherwise be discharged in bankruptcy. Your creditor must agree to the reaffirmation, so while the debt can be renegotiated, but most reaffirmation agreements simply require you to pay the debt as originally agreed.

People usually reaffirm a debt so that they can keep property that they gave as collateral for the debt. Thus, most reaffirmation agreements deal with secured debts, and chapter 7 debtors enter them to keep the creditor from repossessing or foreclosing on the property securing the debt. A valid reaffirmation agreement puts you under a legal obligation to repay the otherwise dischargeable debt. If you default on the payments required under the reaffirmation agreement, the creditor can repossess or foreclose on the property and seek a personal judgment against you.

In order for a reaffirmation to be valid, you and your creditor must sign the agreement and file it with the court before you receive a discharge. In addition, either your attorney or the court must determine that the agreement does not impose an "undue hardship" on your family. The Bankruptcy Code contains many other requirements for reaffirmation agreements. To see there requirements, you can look at the reaffirmation agreement form here.

If you and your creditor do not comply with all the requirements for a reaffirmation, the agreement may not be binding. In that event, you would have no personal obligation to make payments under the agreement.

As a rule, you should think very carefully about whether to reaffirm debt, as this limits your bankruptcy discharge.