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Understanding a reaffirmation agreement in personal bankruptcy

There are various aspects of personal bankruptcy that Texans might not know about as they consider and move forward with the process. One that is often understated and relatively unknown is the reaffirmation agreement. Knowing what this is and what it entails can be an important factor when seeking debt relief in bankruptcy. With reaffirmation, the debtor has the right to promise to repay a debt even if it has been discharged. There could be numerous reasons for doing this.

An example of a reason why a person might want to have a reaffirmation agreement is to formulate a plan for manageable payments to keep a car. To make this promise, the reaffirmation agreement needs to be signed with the court. These agreements have special rules. They are also voluntary. There is no requirement for them under bankruptcy law. With reaffirmation agreements, the following must be in place: they must be voluntary; they cannot place the individual and his or her family under a heavy burden; they must be in the mutual best interest of the debtor and the creditor; and it can be canceled at any juncture prior to the discharge or within 60 days after the court agreement has been filed - this is contingent on what provides the debtor with the greatest amount of time.

When there is a debt that has been reaffirmed and the debtor does not pay it, the debt will be the same as if the bankruptcy never occurred. There will be no discharge of the debt and the creditor can subsequently take action to try to recover the property upon which there is a lien or a mortgage. Legal action can also be taken to recover a judgment against the debtor.

People who are having unexpected life changes or a troublesome financial situation and would like to consider a reaffirmation agreement for any reason need to understand how the process works. A lawyer experienced in all aspects of personal bankruptcy can provide information and guidance as to whether this is a sound option to take.

Source: justice.gov, "Bankruptcy Information Sheet -- What Is a Reaffirmation Agreement?," accessed on Sept. 6, 2016

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