A reaffirmation agreement is a legal contract that allows you to keep a specific debt after bankruptcy, typically one secured by collateral like a car loan or a mortgage. It is essential to weigh your circumstances carefully if you want to retain an asset in your bankruptcy case.
There are a few key considerations to decide if a reaffirmation agreement is right for you.
Can you afford the payment?
Before you pursue a reaffirmation agreement for any asset, make sure that the payment fits your budget. Remember that your budget may change as part of your bankruptcy agreement, so factor in any ongoing payments from your post-bankruptcy financial plan.
Is the asset of particular importance?
When you consider a reaffirmation agreement, the asset in question matters. For example, it might be in your best interest to reaffirm the loan for your car if you need that vehicle to commute to work.
Can it help you rebuild your credit?
One benefit of reaffirming a debt in your bankruptcy is the value it contributes to rebuilding your credit. Timely payments post-bankruptcy show responsible financial behavior, which helps you restore your credit score faster.
Is the asset worth less than your debt?
If you owe more on the asset than it is actually worth, you would end up owing a deficiency balance if you discharge it in bankruptcy. Reaffirm the debt to avoid that additional expense.
More than 360,000 people filed for Chapter 7 bankruptcy in 2020. A reaffirmation agreement could help those individuals retain an asset in their case.