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Reaffirmation Agreement

A voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

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What it means

A Chapter 7 filer with a car loan or other secured debt has to decide what to do about the property. The statement of intention filed with the petition offers three choices: surrender the property and discharge the debt; redeem it by paying the lender its current value in a lump sum; or reaffirm the debt. Reaffirmation is an agreement, signed by the debtor and the creditor and filed with the court before the discharge is entered, that the debt will be repaid as though the bankruptcy had not happened. In return the debtor keeps the property and, in the case of a car loan, keeps the loan reporting to the credit bureaus.

The price is the loss of the discharge as to that debt. If the car is later repossessed or wrecked, the debtor owes the deficiency personally, exactly the liability bankruptcy exists to remove. Because of that, the Code surrounds reaffirmation with formalities: the agreement must contain extensive disclosures of the amount, the interest rate and the debtor's income and expenses; a debtor represented by counsel needs the lawyer's certification that the agreement is voluntary and imposes no undue hardship; an unrepresented debtor must attend a hearing at which the judge decides whether to approve it; and where the debtor's own budget shows the payment cannot be afforded, a presumption of undue hardship arises. The debtor may rescind at any time before the discharge or within a short period after the agreement is filed, whichever is later.

Many debtors and lawyers choose a fourth path the statute does not name: keep paying the loan without reaffirming. The lender keeps its lien and may repossess if payments stop, but the debtor keeps the discharge and can walk away from the car at any time without a deficiency. Whether a lender will accept that - some contracts make the bankruptcy itself a default - and whether the loan will keep reporting depend on the lender and on the law of the circuit, which is why the decision is made case by case.

Where this comes from

Reaffirmation is 11 U.S.C. § 524(c)-(d) and (k)-(m): the enforceability conditions at § 524(c), the required disclosures at § 524(k), the undue-hardship presumption at § 524(m), and the court-approval hearing for unrepresented debtors at § 524(d). The statement of intention is § 521(a)(2), with the consequences of not acting on it at § 521(a)(6) and § 362(h). Redemption is § 722. Official Form 427 is the cover sheet and Director's Form 2400A the agreement. The "ride-through" option was addressed in In re Boodrow, 126 F.3d 43 (2d Cir. 1997), and in In re Dumont, 581 F.3d 1104 (9th Cir. 2009), which reach different conclusions on the point; the rescission period in § 524(c)(4) is not stated here.

When people hire a lawyer for this

A lawyer will usually resist reaffirming anything but a modest, affordable car loan on property the person genuinely needs, and will refuse to certify an agreement the budget does not support - a refusal that is itself a protection. The right question is what the property is worth against what is owed: reaffirming a loan larger than the car's value re-creates a debt the discharge was about to erase, and redemption or surrender may cost far less over time.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

Automatic StayThe immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.
Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
Bankruptcy ExemptionsThe property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.
Bankruptcy Means TestThe income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.
Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
Chapter 13 BankruptcyA reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
Chapter 7 BankruptcyA liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.
Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganization chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

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