A Reaffirmation Agreement is An arrangement in the which the debtor agrees to keep the creditor’s debt out of the Bankruptcy.
The effect of a person signing a reaffirmation agreement means that even though the debtor has filed a Bankruptcy, the debtor will still have to repay the debt after the bankruptcy has been discharged. The Bankruptcy filing has not cleared the debtor’s liability for this debt, even though the reason that you filed Bankruptcy was to get rid of the debts.
You are not required to sign a reaffirmation agreements. Therefore you need to be very cautious before you sign a reaffirmation agreements. Many attorneys feel signing a reaffirmation agreement is a mistake in many cases. In fact, the Bankruptcy Judges in the Eastern District of Pennsylvania have held special hearings to ask the debtors why they are signing a reaffirmation agreement for an unsecured debt and what is the benefit of signing it.
Even though the Bankruptcy laws officially require reaffirmation agreements to be signed for secured debts that will continue to be paid by the debtor, that is not usually necessary. This is because while a creditor can attempt to go after the collateral such as a car or house for failure to sign, in practice the creditor will typically do nothing as long as the debtor continues to make payments on the car or house. the debtor will continue to pay, are often not necessary in practice.
The creditor wants to be paid. If the creditor wants to go after the collateral, the creditor will not get any money. In addition, the creditor will incur large fees to attempt to foreclosure on a home or repossess a car.
The creditor will also have to pay to foreclose on a house, or to repossess the car, which is expensive. Thus if the creditor insists on a reaffirmation agreement, then the creditor might get stuck with the collateral and will not get any payments. Because insisting on the reaffirmation agreement is usually not a good idea for creditors, our experience is that nearly all creditors will not take any action as long as the debtor continues making the regular payments on the loan.
If you do sign a reaffirmation agreement and the automobile is in an accident which is not covered by insurance, the creditor can take you to Court and sue you to collect any remaining balance that you owe. That is the danger in signing a reaffirmation agreement. You would not have owed any money on the destroyed car and now you can be sued for the balance you owe, even though you received a discharge in bankruptcy. Think again before signing a reaffirmation agreement.