Debt Reaffirmation

Have you recently filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code, or are you considering the possibility?  If so, there is some very important information you should know.

In Chapter 7 cases, the United States Trustee's Office or a private individual appointed by the United States Trustee (the trustee) has the responsibility to administer your bankruptcy estate, which consists of almost all of your property as of the date of the bankruptcy filing.  The trustee is required to identify, collect and sell all of your assets owned at the time the petition was filed, except any that might be considered exempt (some personal items, maybe an automobile and possibly some real estate).  The money received from the sale of your assets will be distributed among your creditors.

After filing the bankruptcy petition, you may want to repay a particular debt, such as an automobile to transport you to your place of employment, or you may be asked by a creditor to pay a debt.  If you decide that you want to pay any specific debt(s) that otherwise would be discharged in the bankruptcy, you must sign a reaffirmation agreement (a legally enforceable document promising to pay all or a portion of the debt) and file it with the court.

Reaffirmation agreements are strictly voluntary, must not impose an undue burden upon you or your family, and must be in your best interest.  Remember, just because a creditor asks you to reaffirm, or reobligate yourself to pay a debt, you are not obligated to do so.

Reaffirmation agreements must be filed with the bankruptcy court.  These agreements are legal if they are:

  • Made with the advice of an attorney, or

  • Approved by the court when you are not represented by an attorney.

Recently, some retail merchants and credit-card issuers have solicited customers who filed a Chapter 7 bankruptcy petition to sign a contract agreeing to repay their debt rather than have it discharged by the court.  Although customers did sign reaffirmation agreements, they were not properly filed with the bankruptcy court.  Nonetheless, the companies illegally attempted to collect on the reaffirmation agreements.  Such activity by a creditor is a violation of bankruptcy law.

What is debt reaffirmation?

A debtor agrees to repay a debt even when it might have been forgiven in the course of the bankruptcy proceeding.

What is a debt reaffirmation agreement?

It is a legally enforceable written contract in which a Chapter 7 debtor agrees to repay all or a portion of debt that may otherwise have been discharged by the bankruptcy court.

Is debt reaffirmation legal?

Yes, as long as the agreement is:

  • Voluntary.

  • Made with or without the advice of an attorney.

  • Filed with the bankruptcy court.

  • Approved in certain circumstances by the bankruptcy court.

Why would a consumer want to reaffirm a debt?

As an example, a person who needs her automobile to get to her place of employment might be willing to reaffirm that particular debt to avoid having the vehicle repossessed by the creditor.

Can a debt reaffirmation agreement be canceled?

Yes, under certain circumstances, such as:

  • Before the court issues a discharge, or

  • Within 60 days from the date the reaffirmation agreement is filed with the bankruptcy court.

What does discharge mean?

A discharge is an order issued by the bankruptcy court stating that the debts have been forgiven and do not have to be repaid.  The discharge only applies to debts listed on the bankruptcy schedule, or those that arose before the filing date.  Certain debts cannot be discharged in a Chapter 7 bankruptcy.

What types of debts cannot be discharged?

  • Most taxes.

  • Child support or alimony.

  • Most student loans.

  • Court fines and criminal restitution.

  • Debts incurred through fraud or deception.

  • Personal injury debts caused by driving while under the influence of alcohol.

How often can a debtor obtain a Chapter 7 discharge?

Once every six years.

How long does a bankruptcy filing appear on an individual's credit report?

Ten years.

Do creditors use any other improper methods to avoid bankruptcy court supervision?

Yes, such as a subprime credit card.  Frequently, unscrupulous salesmen from banks or collection agencies offering a new credit card contact Chapter 7 debtors with large credit card debts.  The debtor must transfer the old debt onto the subprime card, which comes with a high annual fee of approximately $75 and interest rates of 18 to 21 percent.  The salesperson may also try to sell the debtor high-profit items such as an auto loan, cellular telephone or long-distance service.  It is not recommended that you consider a subprime credit card.

For more information, contact a private attorney or the United States Bankruptcy Court.