A Chapter 7 bankruptcy discharge releases an individual from personal liability for most debts and prevents creditors from taking collection action against the debtor. In other words, the bankruptcy discharge is a legal injunction prohibiting the creditor from collecting against you personally. There are a few circumstances in which a debt may “survive” the bankruptcy and be enforceable against the debtor. The most common is a voluntary process known as “reaffirmation.”
A reaffirmation is an agreement that continues the debtor’s obligation on a debt, even though the debt would otherwise be discharged in the bankruptcy. Usually these agreements concern property with a lien attached (e.g. a car) and the creditor agrees to not repossess the property as long as the debtor continues to pay the debt.
The decision to reaffirm a debt should not be made lightly. A reaffirmation agreement must be made in writing before the discharge is entered. It must be filed with the bankruptcy court and the debtor must include a statement of current income and expenses that demonstrates sufficient income to repay the debt. The debtor’s attorney certifies that the debtor has been advised of the legal effect and consequences of the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor’s dependants.
Sometimes a reaffirmation agreement is not in the debtor’s best interest. For instance, many co-signed unsecured loans that the debtor perceives a moral obligation to repay can be paid without a reaffirmation agreement (and without a subsequent legal obligation). As you can see, reaffirmation agreements can be complicated and should be carefully considered. Fortunately, the bankruptcy laws provide many options and tools for solving difficult financial problems. If you are considering a reaffirmation agreement to continue paying on a debt, seek the advice of an experienced bankruptcy attorney.