Reaffirmation Agreements in Individual Bankruptcy: The Risks, Benefits, and Court Approval Requirements

Bankruptcy is a useful tool for pursuing debt relief, but the decision you make can have lasting effects on your financial future. One of those decisions involves whether to keep responsibility for a specific debt, even after filing. Reaffirmation agreements are a key part of that conversation, and they can shape what debts you are still responsible for after your bankruptcy filing is complete.

At Todd E. Duffy PLLC, we understand that decisions about filing for bankruptcy are difficult. They often involve your home, your car, and your sense of freedom and stability. Our attorneys are committed to walking you through your bankruptcy case and helping you understand the risks and benefits of reaffirmation agreements.

Located in New York, New York, we serve clients throughout the state and in New Jersey. Contact us today to schedule a free 30-minute virtual consultation.

What Is a Reaffirmation Agreement?

A reaffirmation agreement is a voluntary contract between you and a creditor that allows you to maintain a specific debt after bankruptcy. Instead of having that debt discharged, you agree to continue paying it under the original or modified terms.

This option often comes up when someone wants to retain secured property, such as a vehicle or a home. While bankruptcy may eliminate personal liability for many debts, reaffirming a loan means you’re choosing to stay responsible for that obligation.

How Reaffirmation Agreements Work

Reaffirmation agreements are typically used in Chapter 7 bankruptcy cases. Once the agreement is signed and approved, the debt is no longer part of the discharge, which means you’ll continue making payments as agreed. Reaffirmation agreements typically involve the following:

• Agreement terms: The creditor and debtor agree on the terms, which may stay the same or be slightly adjusted.
• Filing requirement: The agreement must be filed with the bankruptcy court before your case is discharged.
• Legal review: If you’re represented, your lawyer may certify that the agreement doesn’t create an undue financial burden.

While this process may seem simple, the decision can have significant impacts on your financial standing. Therefore, it’s important to consider the potential risks and benefits before deciding to reaffirm a debt.

Benefits of Reaffirmation Agreements

For some individuals, reaffirmation agreements offer a way to maintain stability during and after bankruptcy. They can help preserve access to important assets while maintaining a relationship with a creditor. Some of the key benefits of signing a reaffirmation agreement include:

• Keeping essential property: Reaffirmation can allow you to keep your car or home, which may be critical for work or daily life.
• Maintaining payment history: Making on-time payments can help support your credit rebuilding efforts after bankruptcy.
• Avoiding repossession or foreclosure: Staying current on a reaffirmed debt may reduce the risk of losing the property tied to that loan.

While these advantages can be meaningful, they don’t come without trade-offs. If you are considering singing a reaffirmation agreement as part of your bankruptcy plan, speak with our New York bankruptcy attorneys for guidance.

The Risks of Reaffirming Debt

Reaffirmation agreements can create ongoing financial obligations that remain after your bankruptcy filing is complete. If your financial situation changes, you will still be responsible for that debt. The common risks of signing a reaffirmation agreement include:

• Continued liability: If you default on a reaffirmed debt, the creditor can pursue collection actions, including repossession or legal claims.
• Financial strain: Monthly payments may become difficult to manage, especially if your income fluctuates.
• Limited flexibility: Once the reaffirmation agreement is approved, it can be difficult to reverse the decision.

Because these risks can affect your long-term financial health, the court will review any proposed reaffirmation agreements to make sure they are enforceable, fair, and meet the approval requirements as established under New York or New Jersey law.

Court Approval Requirements for Reaffirmation Agreements

Not all reaffirmation agreements are automatically approved. The bankruptcy court will review these agreements to confirm that they’re in your best interest and that you can reasonably afford the payments. For an agreement to be approved by the court, you will need to meet the following criteria:

• The agreement is voluntary: You’re entering into it without pressure.
• The terms are manageable: Your income supports the required payments.
• You understand the consequences: You’re aware that the debt won’t be discharged.

The court will typically schedule a hearing to review the agreement before it can be approved. This step helps protect you from taking on obligations that could create additional financial hardship.

How to Determine Whether Reaffirmation Fits With Your Goals

Bankruptcy is designed to provide a fresh start, but reaffirmation agreements can shape how that fresh start unfolds. For some, keeping a vehicle is essential for commuting to work. For others, reducing financial pressure may be the top priority. To determine whether reaffirming a debt is the right choice, consider the following factors:

• Short-term needs: Do you rely on the asset tied to the debt for daily living?
• Long-term affordability: Can you comfortably maintain payments after bankruptcy?
• Alternative options: Would surrendering the property and eliminating the debt create more flexibility?

By answering these questions, you can better determine whether reaffirmation fits into your overall financial plan. Contact our skilled bankruptcy attorneys today for tailored guidance on whether reaffirming debt is right for your situation.

Contact Our Experienced Bankruptcy Attorneys in New York Today

If you have decided to file for bankruptcy and are considering signing a reaffirmation agreement, it's important to understand the benefits and risks that these agreements can have on your financial stability. At Todd E. Duffy PLLC, our attorneys, Todd E. Duffy and Douglas A. Amedeo, are dedicated to helping you explore your options and make informed decisions to pursue meaningful debt relief.

Located in New York, New York, we serve clients throughout the state and in New Jersey. Contact us today to schedule a free 30-minute virtual consultation.