Should you sign a reaffirmation agreement?

If you are planning to file for Chapter 13 bankruptcy protection, you may have heard about reaffirmation agreements. These are statements filed with the bankruptcy court in Illinois that show your commitment to retaining and paying certain debts. However, before you sign any reaffirmation agreement it is important for your attorney and for you to consider your financial situation carefully.

The United States Department of Justice points out that in order to submit one of these agreements, you must show the court that the reaffirmation will not cause you undue financial harm. For example, if you recently lost your job, then signing an reaffirmation for a car loan and mortgage could put you in a difficult position since you would be unable to make the payments without income.

When you file for bankruptcy under Chapter 13, the court essentially takes your debt and restructures it. However, debtors may seek to reclaim the property so that it can be resold for the amount originally owed on it. This may encourage you to consider reaffirming debts to prevent this action from being taken. However, it is your and your attorney’s responsibility to look at what your new financial situation will be like under the restructuring to determine if you can afford to reaffirm the debt.

Upon considering your financial obligations, it is important to include continuing expenses for necessities such as food, utilities, housing and clothing. Additionally, it is also a good idea to look at the collateral used to reaffirm the debt and what will happen to that collateral if you are unable to meet the obligations under the reaffirmation agreement. Your attorney should explain to you the consequences if you are unable to fulfill the agreement you sign, such as legal actions taken on the part of the creditors. It is also your responsibility to submit documentation to support your reaffirmation. If a court determines that the reaffirmation will cause you undue harm, it may exercise its right to nullify the agreement. This information is purely for educational value as each bankruptcy case is different.

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