Reaffirmation Agreements in Bankruptcy: What Paralegals Need to Know

What Is a Reaffirmation Agreement?

A reaffirmation agreement is a contract between a debtor and a creditor in a Chapter 7 bankruptcy case where the debtor agrees to remain personally liable for a specific debt that would otherwise be discharged. In exchange, the creditor agrees not to repossess or foreclose on the collateral securing the debt. Reaffirmation allows debtors to keep property like cars or homes while continuing to make payments.

Bankruptcy law is an important component of the Certified Paralegal exam. Understanding reaffirmation agreements demonstrates your knowledge of how Chapter 7 cases work and the critical decisions debtors face during bankruptcy.

When Debtors Consider Reaffirmation

Debtors typically consider reaffirmation when they want to keep secured property and continue making payments. The most common scenarios involve automobile loans and home mortgages, though reaffirmation can apply to any secured debt. Without reaffirmation, the creditor may repossess the collateral even if the debtor continues making payments, depending on the jurisdiction and the terms of the security agreement.

Some debtors also reaffirm debts to maintain relationships with specific creditors, such as a local bank or credit union where they want to preserve their borrowing history. However, reaffirmation should always be weighed carefully against the alternatives.

Requirements Under the Bankruptcy Code

Timing

Reaffirmation agreements must be entered into before the discharge is granted. Under Section 524(c) of the Bankruptcy Code, the agreement must be made before the granting of the discharge. If the debtor misses this deadline, the debt is discharged and cannot be reaffirmed.

Disclosure Requirements

The agreement must contain clear and conspicuous disclosures about the amount of the debt, the annual percentage rate, and a statement that the debtor is not required to reaffirm the debt. The debtor must also receive a disclosure explaining the consequences of reaffirmation, including that the debt will survive bankruptcy and the debtor will be personally liable.

Right to Rescind

Debtors have the right to rescind a reaffirmation agreement at any time before the discharge is entered or within 60 days after the agreement is filed with the court, whichever is later. This cooling-off period protects debtors from hasty decisions.

Court Approval Requirements

If the debtor is not represented by an attorney, the court must approve the reaffirmation agreement after a hearing. The court will evaluate whether the agreement imposes an undue hardship on the debtor and whether it is in the debtor's best interest. Even when an attorney represents the debtor, the court may review agreements where the debtor's expenses exceed income.

The attorney must certify that the agreement is voluntary, does not impose an undue hardship, and that the debtor was fully advised of the legal consequences. This certification carries significant responsibility.

Review bankruptcy concepts efficiently with our CP exam flashcards. Focused study on reaffirmation requirements helps you prepare for exam questions.

Alternatives to Reaffirmation

Redemption

Under Section 722, debtors can redeem personal property securing a dischargeable consumer debt by paying the creditor the current value of the collateral in a lump sum. This can be advantageous when the debt exceeds the property's value.

Ride-Through (Where Available)

In some jurisdictions, debtors can keep the property by simply continuing to make payments without formally reaffirming the debt. However, the 2005 BAPCPA amendments limited this option, and its availability varies by circuit.

Surrender

If the property is not worth keeping, the debtor can surrender it to the creditor. The remaining debt is discharged, freeing the debtor from both the property and the obligation.

The Paralegal's Role

Paralegals in bankruptcy practice help prepare reaffirmation agreements, ensure all required disclosures are included, calculate the debtor's ability to make payments, and coordinate filing with the court. They also track deadlines for filing and rescission, prepare the debtor for any required court hearing, and maintain detailed case records.

Exam Preparation

For the CP exam, focus on the timing requirements, disclosure obligations, rescission rights, and court approval standards for reaffirmation agreements. Know the difference between reaffirmation, redemption, and surrender. For structured study covering bankruptcy and all exam domains, explore our CP exam prep plans.