After months or years of attempting to secure payments, it is discouraging to hear that a debtor has filed for bankruptcy. Once the debtor has filed for bankruptcy the creditor can no longer contact them to secure money owed. It may even mean they will never secure those payments altogether. However, finance companies, mortgage companies and other secured creditors have another option: reaffirmation agreements.
A reaffirmation agreement keeps the debtor liable for their debt after the bankruptcy period is complete. Once the discharge is issued, the creditor can file a lawsuit against the debtor. Reaffirmation agreements only work for Chapter 7 bankruptcy. However, it is important that a creditor hires an attorney to complete a reaffirmation agreement.
Why is it important to hire an attorney?
An incomplete or convoluted agreement can mean a creditor will lose their ability to pursue collection after bankruptcy is complete. A creditor could try to take possession of collateral, but they could not pursue payment. An attorney can draft a legally accurate agreement and file it with the bankruptcy court.
For example, a debtor has not paid for a vehicle finance loan. The debtor gives the creditor notice that they are filing for Chapter 7 bankruptcy. The creditor fails to draft a correctly formulated reaffirmation agreement in time. The debtor has their debts discharged and they all liability is absolved for their payments. Once the bankruptcy filing is complete, the creditor losses all rights to pursue the remaining collection.
Reaffirmation agreements changed in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act. What used to be a simple one page document turned into a large and detailed agreement. It is often difficult to get the agreement signed and properly filed with the bankruptcy court. This makes it especially important to contact an attorney when dealing with a debtor who is filing for bankruptcy.