Reaffirmation Agreement

When you file bankruptcy, most debts are discharged — erased. But what if you want to keep your car and you still have a loan on it? Normally, the loan would be discharged along with your other debts, meaning you could keep driving the car for a while but the lender could eventually repossess it once the legal protection ended. A reaffirmation agreement is a way to keep both the car and the loan.

By signing a reaffirmation agreement, you're telling the court and the lender: 'Even though I'm filing bankruptcy, I want to keep this debt and keep making payments.' The debt is specifically excluded from your discharge, and you remain personally liable for it going forward — exactly as if you'd never filed bankruptcy on that particular debt.

Reaffirmation agreements must be filed with the court and are typically reviewed by a judge or your attorney. If the court believes the reaffirmation creates an undue financial hardship for you, it can reject it. Importantly, you have the right to cancel ('rescind') a reaffirmation agreement within 60 days of filing it — even if the court has approved it — simply by notifying the lender in writing.

The most common use of reaffirmation agreements is for car loans. If your car is worth more than the loan balance and you need it for work, keeping it through reaffirmation makes sense. However, you're taking on the full risk again: if you default on the loan after bankruptcy, the lender can repossess the car AND sue you for any deficiency balance.

Many bankruptcy attorneys advise clients to think carefully before reaffirming. If you can afford the payment comfortably and the car is essential to your life, reaffirmation makes sense. If you're on the financial edge, simply surrendering the vehicle and using bankruptcy's fresh start to get something more affordable may be wiser. Never reaffirm out of emotional attachment to a car you can't afford.