What steps must a bankruptcy debtor take to reaffirm a debt?

A debtor who wishes to retain possession of property that is secured by a lien may do so by “reaffirming” the debt and keeping payments current. The debtor may also redeem the property by paying the creditor the total amount owed on the contract. Debts that are reaffirmed will not be discharged. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or the “Act”) includes several provisions that standardize the reaffirmation process. Specifically, if you are contemplating reaffirming a debt, you must first receive an extensive set of disclosures and take certain steps, as outlined in §524(k) of the BAPCA. If you fail to comply with these requirements, the reaffirmation agreement will not be effective even though you have signed the disclosure statement. A Disclosure Statement detailing your rights as the debtor must be signed by you and filed with the court. The disclosure statement must be clear and conspicuous, in a form that you may keep, and easily understood. The Act contains clear instructions on how the disclosure statement may be made clear. Because the creditor must provide a disclosure statement that is part of the Reaffirmation Agreement, the creditor normally prepares the agreement. The creditor must provide you, the debtor, with the following information:

  • Amount of debt.
  • Total of any fees and costs accrued as of the date of the disclosure statement.
  • Rates of interest.
  • Payment schedule.
  • Filing requirements.
  • Right to rescind.
  • Statement that the agreement does not impose a hardship on the debtor.
  • If the debt is secured by a security interest that has not been waived or avoided, the security interest must be disclosed listing the items and original purchase price that secures the debt.
  • Statements concerning creditor options.
  • Statement concerning the decision to reaffirm a debt and the steps required before the final decision is reached.
  • Consequences of missed payments.
  • Effects of a lien on the property.
  • Information regarding court approval of the agreement.

Follow these links to view a sample Reaffirmation Agreement and Cover Sheet. Along with the disclosure statement and reaffirmation agreement, you must file a Statement in Support of Reaffirmation Agreement. This statement must disclose your income and expenses, and the balance available to pay the debt to be reaffirmed. The Debtor’s Statement in Support of Reaffirmation Agreement is part of the Agreement. If the statement indicates insufficient income to make the payments scheduled in the reaffirmation agreement, a presumption will arise that the agreement is an undue hardship on you. This presumption period lasts for 60 days. During this presumption period, the court will review the agreement and statement. If your statement indicates inadequate funds to make the payments, then you must include an explanation of how you will pay the debt. If you have not satisfied the court that the reaffirmation agreement does not impose an undue hardship, the court will hold a noticed hearing to disapprove the agreement. The disapproval hearing must take place before your (the debtor’s) discharge. However, if the creditor is a credit union, the reaffirmation agreement is not subject to a disapproval hearing.

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