Most people in southwestern Minnesota who file a petition in bankruptcy expect the proceeding to result in the discharge of most, if not all, of their debts. Some potential bankruptcy filers may therefore be surprised to learn that a significant benefit may accrue from a decision to reaffirm one or more debts that they owe.
Reaffirmation of a debt is a bankruptcy procedure in which the debtor voluntarily agrees to pay a debt that would otherwise be declared void – that is, discharged – by the final order in the bankruptcy proceeding. Generally, reaffirmed debts involve secured obligations, that is, a loan the repayment of which is secured by the pledge of collateral that can be seized by the creditor in the event of default by the debtor. The most common example of such a debt is an installment credit and loan agreement that has been used to finance the purchase of an automobile. Another example is a home mortgage. Any debt that is reaffirmed cannot be discharged in a subsequent bankruptcy proceeding for either years.
To reaffirm a debt, the debtor must fill out and sign a reaffirmation agreement, submit the agreement to the court and bring the debt current. The reaffirmation agreement requires the debtor to state whether an attorney was consulted in connection with the agreement. If an attorney was consulted, the attorney must provide certain information to the court.
Whether submitting a reaffirmation agreement is a wise step or not should be decided only after consulting with a competent bankruptcy attorney. Some debtors used the possibility of a reaffirmation agreement to begin negotiations on restructuring certain debts with the creditors. Anyone thinking about reaffirming one or more debts should consult an experienced bankruptcy attorney for advice on the wisdom of the restructuring and for help in drafting and filing the reaffirmation agreement itself.