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What does it mean to reaffirm a debt?

After a Bradley County, Tennessee resident files for a bankruptcy, he or she may get something in the mail called a reaffirmation agreement. These agreements are particularly common in Chapter 7 bankruptcies with respect to car loans and similar types of debt, although a debtor might receive one for a mortgage or other type of debt now.

For those who might be filing bankruptcy without a lawyer, these agreements could seem harmless enough and they just sign and return them to the lender. After all, the person may be planning to repay that debt anyway, particularly if the alternative is for them to have their car or other piece of property repossessed once the bankruptcy is over.

However, it is very important for people to remember that, by signing the agreement, they are doing exactly what the agreement implies, legally "reaffirming" that they will continue to pay on the debt despite the bankruptcy. The bankruptcy discharge will not apply to the debt that they "reaffirmed," meaning the debtor gets no financial relief on that particular debt, and the lender has the right to the balance of the loan.

Furthermore, until the debtor is eligible to file for bankruptcy again, which is usually several years, the lender has the right to use all lawful collection techniques should the debtor continue to struggle financially, which is always a possibility. This means a lender will not only be able to, for example, repossess a car, the lender can also take the debtor to court for any outstanding balance the debtor may owe after the car gets sold at auction and may eventually even get a wage garnishment.

The decision to sign a reaffirmation agreement is a very serious one and should only be done after thinking about it carefully. Furthermore, it is generally best to discuss the benefits and drawbacks of reaffirming a debt with an experienced bankruptcy attorney.

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