In a Chapter 7 bankruptcy, a reaffirmation agreement is basically a contract between you and your creditor, that states that you agree to to treat that specific debt as if you have never filed bankruptcy. If you sign a reaffirmation agreement and then fail to pay that creditor, they can sue you and garnish your wages. Don’t ever sign a reaffirmation agreement unless you are extremely confident you will be able to make the future payments. If you sign a reaffirmation agreement, you can change your mind a rescind it before the discharge or within 60 days of signing it. If you change your mind, notify your bankruptcy attorney immediately so that the necessary papers can be filed with the bankruptcy court!
Many people who file bankruptcy are under the misconception that if they reaffirm a debt, that debt is not listed in the bankruptcy petition. Just the other day, I was meeting with a client in my Rome GA office who stated that he did not want to list his car in his bankruptcy case and that when his friend filed, that friend did the same thing in his case and had no problems. The truth is that you must list all of your creditors in your bankruptcy case or you will be in violation of the bankruptcy laws. I will never file a case for any person unless we are listing every single debt that they have. Sometimes, I will get resistance from clients who have a cosigner on a car note. Even debts with cosigners must be listed in your bankruptcy petition.
Statement of Intentions.
In addition to listing all of your debts in a Chapter 7, there is a page of the petition called the Statement of Intentions. On this page, a person filing Chapter 7 will state whether or not they wish to reaffirm or surrender cars, houses, and other secured debts. The creditor will mail a copy of the reaffirmation agreement to your bankruptcy attorney. After reviewing the document, your bankruptcy attorney will meet with you so that you can sign it. Then, the reaffirmation agreement will be mailed back to the creditor so that they can review it again and then filed it with the bankruptcy court.
There is a section of the reaffirmation agreement where your attorney must sign that it is in the best interests of the debtor to reaffirm. In some cases, I won’t sign off on reaffirmation agreements. For example, if the interest rate on a car note is higher than 12 percent, I don’t think it is in your best interest to sign a reaffirmation agreement. Once you sign, you cannot file Chapter 7 again for eight years. The purpose of Chapter 7 is to give you a fresh start. Can you get a true fresh start if you reaffirm some junker car with a 25 percent interest rate? I don’t think so. You would be better off filing a Chapter 13 and paying six percent interest on the car.
Second and mortgages are another situation where I won’t sign a reaffirmation agreement. If you default on a second mortgage in Georgia, the creditor can garnish your wages to collect. In most cases, a second mortgage company will not exercise their right to foreclose if you don’t reaffirm. In order for a second mortgage company to foreclose on you, they must pay off the entire balance of your first mortgage. With real estate prices in their current depressed condition, this would be economic suicide for most second mortgage holders.