In some scenarios, a debtor may wish to pay a debt even though the debt is dischargeable in bankruptcy. Federal bankruptcy law does not prohibit a debtor from voluntarily agreeing to pay a debt, provided it is a debt that would otherwise be discharged with bankruptcy estate funds that are not for the benefit of general unsecured creditors. If a debtor agrees to pay such debt by contract, the debtor must enter into a reaffirmation agreement with a creditor to “reaffirm” the debtor’s intention to repay the debt.
Generally, it is not advisable for debtors to remain bound to pay an otherwise dischargeable debt unless necessary to retain the property securing the debt.
It is important to remember that when a debtor enters into a reaffirmation agreement, he or she will remain contractually obligated to pay this otherwise dischargeable debt if unable to make payments in the future after the bankruptcy case is over.
A reaffirmation agreement is voluntary and, therefore, a debtor is not required to reaffirm any debts. A creditor cannot compel a debtor to enter into a reaffirmation agreement.
For a reaffirmation agreement to be valid and binding, it must be executed before the bankruptcy court grants the debtor’s discharge order. An executed reaffirmation agreement must be filed by either the debtor or a creditor filed within 60 days after the first date set for the first meeting of creditors in the bankruptcy case unless such deadline is extended by motion.
A reaffirmation agreement may be canceled by a debtor by the later of (1) the issuance of a discharge in the bankruptcy case or (2) 60 days from the date the reaffirmation agreement is filed with the bankruptcy court.
If a debtor is represented by an attorney, the attorney must certify in writing that the attorney advised the debtor of the legal effects and consequences of the reaffirmation agreement, including default pursuant to the terms of the agreement. The attorney must also certify that:
- the debtor made a fully informed decision to enter into the agreement;
- the debtor voluntarily decided to reaffirm the debt; and
- the reaffirmed debt will not create an undue hardship for the debtor or the debtor’s dependents.
Entering into a reaffirmation agreement may have substantial financial consequences, thus, debtors must fully understand the terms and ramifications of the agreement prior to signing such an agreement. A seasoned bankruptcy attorney such as Theron Morrison may help any debtor make an informed decision that will protect his or her property interests.
Theron Morrison cares about protecting your rights. This includes negotiating with your car creditor in a Chapter 7 case when you wish to retain your car and possibly reaffirm the underlying debt. Talk to the Morrison Law Group about your Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.