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Understanding reaffirmation agreements

When residents of Bradley County contemplate filing a bankruptcy petition, one of their most bothersome concerns is whether they can keep their house or automobile. The bankruptcy process provides several alternatives for keeping essential assets, but one of the most important techniques is executing a reaffirmation agreements in which the debtor agrees to keep making payments on a loan secured by a lien or mortgage.

In a Chapter 7 proceeding, all debts will ordinarily be discharged unless the debtor takes action to keep the underlying security agreement in force. If the debtor takes no action, the creditor can enforce whatever rights are specified in the security agreement to repossess the asset in question. For example, a bank that extended a loan to purchase an automobile may repossess the car if the debtor does not reaffirm the security agreement with the bank.

Reaffirmation agreements are subject to strict rules that are intended to protect the debtor. The reaffirmation agreement must be executed by both parties before the court enters the order for discharge. The agreement must contain an accurate set of disclosures that specify the unpaid balance on the loan and the method used to calculate that balance.

The debtor must also provide a statement setting forth his or her current income that shows that existing income will be sufficient to repay the loan that is being reaffirmed. If the debtor is represented by an attorney, the attorney must sign a statement that affirms that the attorney has advised the debtor about the legal effect of the reaffirmation agreement. If the debtor is not represented by a lawyer, the bankruptcy court may require a hearing to ensure that the debtor is fully informed about the consequences of the reaffirmation agreement.

Anyone contemplating bankruptcy who wants to maintain possession of a car or boat or other large asset may wish to obtain advice about reaffirming such debts from an experienced bankruptcy attorney.

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