How to Keep Your Property: The Reaffirmation Agreement

A common question that I receive from new clients is “can I keep my house/car when I file bankruptcy?” The short answer is YES. By signing a reaffirmation agreement you will be able to keep your property once the bankruptcy case is complete. However, by entering into this agreement you will continue to be personally responsible for the debt even after your bankruptcy case has been discharged and closed.

A reaffirmation agreement refers to an agreement made between a secured creditor and the debtor wherein the debtor agrees to be liable for the debt once the bankruptcy case is closed in exchange for keeping the property. The discharge order granted by the Bankruptcy Court wiping away all of the debtor’s debt will not apply to any debts that are reaffirmed. Most statutory authority for these agreements is codified at 11 U.S.C. § 524.

Once a secured creditor receives the notice of your bankruptcy filing they will send a reaffirmation agreement to your attorney’s office. The agreement will state what property the agreement applies to, what the payment terms are (monthly payment amount, interest rate, etc.), what amount of money is being reaffirmed, among other information. The debtor must disclose their monthly income information, monthly expense information, and if any of this information changed since the original filing the debtor will need to give the court an explanation why it has changed.

There Are Safeguards

When the debtor is represented by an attorney the agreement must be signed by the debtor, the debtor’s attorney, and the creditor. The reaffirmation agreement is then filed with the Bankruptcy Court for final review. The Bankruptcy Court wants to make sure the agreement is not placing the debtor in a similar or worse financial situation upon leaving the bankruptcy case. If the Bankruptcy Court has any questions or concerns about it will set a hearing to discuss the reaffirmation agreement. If there are no concerns and you can afford the monthly payment in your monthly budget – the debt is reaffirmed and you keep your property.

Additionally, the debtor has the right to cancel (rescind) any reaffirmation agreement at any time prior to the entry of the discharge order or within 60 days after the agreement is filed with the court; whichever occurs later. In order to cancel the agreement a written notice muse be sent to the creditor informing them of the change of heart.