What is a Reaffirmation Agreement?

Darren DiMarco

Put simply, a reaffirmation agreement is where you agree to pay a debt even though you could have eliminated the debt in your bankruptcy case.  Reaffirmation agreements are used in relation to secured debts – where the creditor issues a loan backed by collateral, such as a car loan.

Normally, after your debts are discharged in Chapter 7, you are no longer personally liable for secured debts and other dischargeable debts.  This gives you a “fresh start.”  Nevertheless, the finance company on your car may still repossess the vehicle if you become sufficiently delinquent causing a default.  Since, however, obtaining a discharge means you are no longer personally liable for the debt, the creditor would not be able to sue you for any financial losses they may suffer from the repossession.  So, if you want to keep your financed car, keep paying the installments timely.

2023 California Law. A typical car loan contract (at least one prior to 2023) may contain a “bankruptcy clause” that suggests the finance company could take the car back after a bankruptcy is filed unless a reaffirmation agreement is signed.  As of January 1, 2023, California law effectively invalidates this type of bankruptcy clause in an auto loan contract.  Consequently, reaffirmation agreements are currently not required to keep possession of a car – however, as stated, staying current on the loan payments is still necessary.  In other words, the finance company may only repossess or take default actions if the borrower (aka “Debtor” in a bankruptcy case) breaches the contract.

Requirements.  Reaffirmation agreements: 1) must be voluntary; 2) must not place too heavy a burden on you or your family;  3) must be in your best interest; and 4) can be canceled any time before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.  

The Bottomline.  Signing a reaffirmation agreement is voluntary and may not be in your best interest.  Therefore, it is wise to consider all of your options and speak with an experienced bankruptcy attorney who can help you decide if there are any benefits to you in entering into a reaffirmation agreement.  Also, check out our Blog titled, “Should I sign a reaffirmation agreement for my car loan?”

– Bonus Information – 

Making Payments: IMPORTANT.

While your bankruptcy case is pending, and if you intend to keep the vehicle, you should continue making payments to the creditor.  Your creditor may have stopped sending you the monthly bill after you filed for bankruptcy. If so, contact the creditor immediately to get the correct payment information, including the address and payment date.  If you do not hear back from the creditor, it is still your responsibility to make the payments on time.  Please note: Due to the automatic stay that is in place after your case is filed, many creditors will not accept automatic bill pay, online bill pay or take a check over the phone.  

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The California bankruptcy attorneys at DiMarco Warshaw, APLC are looking out for your best interests.  We’ll use our skill and experience to help you determine whether or not there are sufficient benefits for entering into a reaffirmation agreement.  

To speak to one of our attorneys who will help you with solutions to your specific circumstances, schedule a free phone evaluation here https://calendly.com/dimarcowarshaw/20min or call us directly at 888-890-5474.

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