What is a reaffirmation agreement?

Filing Chapter 7 bankruptcy can help individuals find the relief they need from the debt that weighs on their shoulders. However, the bankruptcy process can involve several additional details, documents and agreements, that can make this process even more complex.

So, let’s take a look at one such agreement that individuals might use during their bankruptcy: the reaffirmation agreement.

How does a reaffirmation agreement work? 

Most people file Chapter 7 bankruptcy to eliminate their dischargeable debts, including:

• Credit card debts
• Medical or utility bills
• Personal loans

However, a reaffirmation agreement is an agreement that individuals can voluntarily enter that requires them to keep paying a specific debt after they receive their bankruptcy discharge.

Many New Mexicans might wonder why someone would choose to continue paying a debt that can be discharged in bankruptcy. There is one goal for these agreements: to keep the collateral attached to that loan or debt. 

For example, most individuals use reaffirmation agreements to keep a vehicle from being repossessed, and they agree to continue repaying the auto loan after they complete their bankruptcy.

There are only a few situations when you should consider a reaffirmation agreement

Remember, these agreements are voluntary. It is up to the individual filing bankruptcy whether or not they wish to enter such an agreement and file it with the bankruptcy court. 

And there are only a few circumstances in which individuals may want to consider a reaffirmation agreement, including if:

• The creditor is willing to negotiate with an agreement;
• The individual needs the item up for collateral; or
• They have the means to pay the debt after bankruptcy.

Reaffirmation agreements are not for everyone

It is helpful for individuals to understand all of the details and options available to them during bankruptcy. However, a reaffirmation agreement is not going to meet the needs of everyone who files bankruptcy.

In fact, the collateral these agreements protect is often protected under the state or federal exemptions from the bankruptcy estate. That is why it is critical for individuals to understand the details of bankruptcy before they move forward, so they can ensure they protect their best interests and their future.