When filing for Chapter 7 bankruptcy, most debts are discharged, freeing you from personal liability. However, secured debts—loans backed by collateral such as a car or house—can sometimes be retained through a reaffirmation agreement. This agreement, often referred to as a bankruptcy reaffirmation clause, is a voluntary contract where you agree to keep paying a specific debt even though bankruptcy would normally eliminate it.
The reaffirmation agreement serves to protect your right to keep the property tied to the debt. For example, if you want to keep your car, your lender may require you to reaffirm the loan, agreeing to pay it back under the original or similar terms. This re-establishes your legal liability on that debt outside the protection of bankruptcy discharge.
The automatic stay in bankruptcy initially halts creditor actions like repossession or foreclosure, but without reaffirmation, the debt could still be wiped out by the discharge. Reaffirmation prevents this by legally binding you to the payment obligations.
Before signing, it’s crucial to review the terms carefully, ideally with your bankruptcy attorney’s guidance. The judge must approve the reaffirmation, ensuring it does not cause undue financial hardship. You can rescind the agreement within 60 days of signing or before your discharge is granted.
Benefits of reaffirming include keeping essential property and potentially rebuilding credit by maintaining positive payment records. However, the drawbacks include losing the bankruptcy discharge protection on reaffirmed debt and risking deficiency claims if you default and the lender sells collateral for less than the owed amount.
If you choose not to reaffirm, some lenders may allow a “ride-through,” letting you keep the property by continuing payments without a reaffirmation agreement. Others may repossess the collateral after bankruptcy.
For more details about how reaffirmation interacts with bankruptcy processes and your rights, see our related article on Bankruptcy Reaffirmation Agreement. Also, learn about Bankruptcy Automatic Stay to understand creditor protections during bankruptcy.
For up-to-date legal standards and federal rules, consult official sources like the U.S. Courts’ Chapter 7 Bankruptcy Basics and the Consumer Financial Protection Bureau.
