Reaffirmation Agreement

What Is A Reaffirmation Agreement?

A Reaffirmation Arrangement is a form of agreement that a debtor enters into with a lender to repay some or all of debt despite filing for bankruptcy. When a person files for bankruptcy, it is to be released of a debt load that they are unable to pay.

Deeper Definition

A borrower typically retains control of an item held as collateral, such as a home or a car, by signing into a reaffirmation agreement, as long as they can fully repay the amount owing on that particular loan. Some borrowers want to continue making payments on their loans without going through the official reaffirmation procedure. This is usually beneficial to someone who is attempting to rebuild their credit after filing for bankruptcy. Borrowers who do not reaffirm a debt, on the other hand, usually do not have their payments recorded with credit reporting agencies.

Borrowers who only need to get out of debt and are unlikely to make regular payments stand to earn nothing from the reaffirmation procedure. Reaffirmation makes a borrower accountable for a debt and is handled through a formal agreement with the courts, making it a legal procedure for the borrower to defend themselves and their assets.

Debtors enter into reaffirmation agreements willingly. They are legal papers, yet breaching them does not result in imprisonment. If the debtor fails to make their regular payments and violates the agreement, the lender may repossess the collateral.

Reaffirmation Agreement Example

Assume Stephen owns a vehicle and has $15,000 remaining on his mortgage. Assume his monthly principal and interest payments total $500, and he recently lost his job amid a recession and is unable to find another position. Stephen can work with his mortgage company to secure a court-approved reaffirmation, which will assist him to reaffirm the debt he owes on the auto mortgage and allow him to renegotiate payments with the lender.

During the reaffirmation process, he and his mortgage company will agree to a reduced monthly mortgage payment or a lower interest rate. That way, he may supplement his income with side occupations. If he fails to make the mortgage payments under the new terms, the lender will seize his home and initiate foreclosure procedures.