Should I Enter into a Reaffirmation Agreement?

Reaffirmation agreements can be tricky, and to know whether you should enter into one, you need to get the advice of an experienced bankruptcy attorney.  In order to understand what a reaffirmation agreement is, you need to understand that there are two types of liability when you finance big purchase items like vehicles and homes.  The first type of liability is called personal liability.  This is the liability that you assume by signing the contract to purchase whatever it is that you are purchasing.  The second type of liability is called in rem liability.  This is the liability that is created when you agreement to give a security interest in the property that you are purchasing.  When you give a security interest in the property you are purchasing, you agree to continue making payments on the property, and if you stop making payments, the property can be repossessed in the case of a car, or foreclosed upon in the case of a house.

Understanding that there are two types of liability is important to understanding what a reaffirmation agreement is, and what it will do.  When you file for bankruptcy and receive a discharge, all of your personal liability for all of your debts is discharged.  That means that the first type of liability on the car that you purchased, or on your home, is discharged in the bankruptcy.  This does not mean you can stop making payments though.  If you stop making payments, you still have in rem liability on that property, and the property can be repossessed or foreclosed.  If your car is repossessed after you receive your discharge, the creditor is going to most likely sell the car or home at an auction.  If the creditor receives less than what you owed on the property, this is called a deficiency balance.  Since your personal liability was discharged in the bankruptcy, you are not liable for this deficiency balance your personal liability on the debt was discharged.

Entering into a reaffirmation agreement with a creditor means that you agree to remain personally liable on the debt.  If you enter into a reaffirmation agreement, and later your car is repossessed, or your home is foreclosed, you will still owe the deficiency balance if there is one.  One of the purposes of filing bankruptcy is to give you a fresh start in your financial life, so entering into a reaffirmation agreement should not be done without understanding the full ramifications of doing so.  An experienced bankruptcy lawyer Arlington TX trusts can help you determine if entering into a reaffirmation agreement is right for you.

Thanks to our friends and contributors from Brandy Austin Law Firm PLLC for their insight into reaffirmation agreements.