What Is a Reaffirmation Agreement?
A reaffirmation agreement is an agreement by which the debtor agrees to remain personally liable for a debt post-bankruptcy. A reaffirmation agreement essentially eliminates the benefit of filing for bankruptcy for that one specific debt. Because reaffirming a debt undermines the most basic benefit of filing for bankruptcy, we generally discourage our clients from signing a reaffirmation agreement, unless required to do so by the lender to keep the property. If you are inclined to sign one, you should seek counsel from an experienced bankruptcy lawyer before entering into a reaffirmation agreement.
What is Required to Sign a Reaffirmation Agreement?
If you are represented in your bankruptcy case by a chapter 7 bankruptcy lawyer, the lawyer must review your financial position following bankruptcy and certify to the bankruptcy court that entering into the reaffirmation agreement will not cause an undue financial hardship. If the bankruptcy attorney cannot or will not make that representation to the court, your attorney may need to withdraw from your case (in some jurisdictions like Utah), so that you can represent yourself in the reaffirmation.
Once the agreement is filed with the court, the bankruptcy judge must also approve the agreement.
Why Do We Discourage Reaffirmation Agreements?
As a Salt Lake Bankruptcy lawyer, it is difficult to predict a person’s financial future. Therefore, our experienced bankruptcy lawyers generally discourage our clients from entering into a reaffirmation agreement…unless absolutely necessary. Most secured creditors with whom a reaffirmation agreement would arise arise—automobile lenders—generally allow you to keep the secure property (automobile) without entering into a formal reaffirmation agreement, so long as you keep your payments current. We call this the “pay and retain” method. While a creditor is not legally obligated, our experience is that most secured creditors will agree to the pay and retain method, although more and more creditors are moving away from this option in recent times. While the pay and retain method works well with most secured creditors, there are a minority of creditors who take the extreme position to repossess the secured property even if you are current. America First Credit Union is one of these creditors. In cases that deal with AFCU or other creditors who take the same position, it may be necessary to enter into the reaffirmation agreement in order to retain possession of the secured asset. As mentioned, the best way to ensure that your rights and best interest is protected is to consult with an experienced Salt Lake bankruptcy lawyer.
What About My Mortgage?
We do not see many mortgage companies sending a reaffirmation agreement for consideration. In our experience, we have not dealt with a mortgage company that threatened to foreclose if a reaffirmation agreement was not signed. Judges in our district and in other jurisdictions have indicated that it would be malpractice for an attorney to sign a reaffirmation agreement. As a result, our office will never certify a reaffirmation agreement with a mortgage lender. If your mortgage lender is requiring it to avoid foreclosure (even if you are current), then we will have to take the necessary steps to allow you to proceed pro se.
Are Reaffirmation Agreements Covered by a Flat-Fee Engagement?
Many attorneys do not cover the review and certification of a reaffirmation agreement in their standard flat-fee engagement. Our office follows this practice as well. That’s because in the majority of cases a reaffirmation agreement is unnecessary. Rather than increasing our prices for everyone to cover that possibility, we keep the cost of filing lower and charge a nominal fee when it applies to the case at hand.