Considering bankruptcy or getting ready to file one? If so, you may not know how a reaffirmation agreement can help you. Deciding to sign a reaffirmation agreement is something that you should discuss with your attorney. However, you will need to know the pros and cons to signing a reaffirmation agreement. Here’s what you need to know:
Reaffirmation Agreements in Bankruptcy
When filing for bankruptcy, you will list all of your debts and determine if they are secured or unsecured by collateral (like property or against a loan). Click Here for more information about secured and unsecured debts. After determining the types of debt you have, you’ll need to decide what to do with any collateral. Will you surrender, redeem, or reaffirm the debt.
How Does a Reaffirmation Agreement Work?
A reaffirmation in bankruptcy is an agreement that you can choose to sign with a creditor. The agreement will prevent that debt from being discharged in bankruptcy. Essentially, you are beginning a new contract with the lender. Also, this debt will not be discharged at the end of your bankruptcy.
Advantages of a Reaffirmation Agreement
You can typically negotiate better terms when signing a reaffirmation agreement. For example, you may need fewer payments, lowered interest rate, or a reduced amount to repay the creditor. So, if you believe that you are financially able to pay off the balance and you can get better terms, a reaffirmation may be a good option.
Keep in mind that, if you default on this loan after your bankruptcy is discharged, the property secured by that loan can be repossessed. Reaffirmation agreements are mostly associated with car loans. You also can be sued for any additional money owed after the property is sold. So, by sticking to your payments, you avoid the sale of your property by a bankruptcy trustee.
Remember, you should weigh all your options and speak with your attorney before signing anything.
The major disadvantage of reaffirming a debt is that you remain in debt after your bankruptcy ends. You are also still tied to payments, even if the property is damaged or destroyed. If you miss a payment, the creditor can take the property, sell it, and bill you for any amount left over its sale that you owe. Also, you cannot enter into a reaffirmation agreement if you are already behind on any payments.
Reaffirmation Agreements and Home Loans
While you are not required to enter into a reaffirmed agreement for your home loan, you may be asked by your lender to enter into one. Please speak with your attorney before signing anything.
Need More Information?
At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together, we would like you to get to know us. We want you to be sure that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law. Call us today to set up a free consultation.