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Rebuilding Credit Post-Bankruptcy: To Reaffirm or Not to Reaffirm?

The decision to reaffirm debt is one thought over by many people who have gone through bankruptcy. People in this position must decide if items they own are worth keeping and continuing to pay for, or should they discharge them through bankruptcy.

If a person ends up deciding to keep certain items, then they may have to sign a "Reaffirmation Agreement" with their creditor. In the "Reaffirmation Agreement" the person signing the reaffirmation agrees to be responsible for the debt, and the creditor agrees to let that person keep their property.

Continuing to pay these reaffirmed debts regularly, to the point where they are completely paid off, will look great to future creditors. The payments will also appear on a credit report. Paying off reaffirmed debts will be beneficial references for creditors to check the financial stability of debtors post-bankruptcy. Creditors care more about recent, 1-2 years payment history, than the history of your bankruptcy. However, if you are not able to make payments regularly, reaffirmation might not be the best choice, and therefore debts should be discharged under bankruptcy.

To help decide on if a debt is worth reaffirming, an item should:

Be a necessity for everyday life; a vehicle or household appliance, or the creditor must be willing to reaffirm the item for the actual value, which could still be a lot less than the debt owed.

There are three options available in bankruptcy: reaffirm the debt, surrender the merchandise or pay the fair market value in a lump sum payment, which is called redemption. Additionally, It is good idea to attempt to re-negotiate the terms of the loan by requesting a reduced the interest rate or by reducing the principal balance in the agreement.

Reaffirmation can be undone; if a person already reaffirmed debt they can get out of the agreement. By notifying the creditor of one's intention to rescind within 60 days of the date the agreement was filed with the court or any time before a discharge is entered.

Creditors are required after the signing of the reaffirmation agreement to submit it to court to be on the record. However, some creditors do not do this, and therefore you can have the agreement thrown out. The agreements have to be filed with the court prior to entry of a discharge.

Reaffirmation of debt is an important decision many face post-bankruptcy, and it is very important for someone debating to reaffirm or not, to assess their current financial situation in order to make sure reaffirming debt is beneficial to them.

Works Cited

Ryan, Paula Langguth. Bounce Back from Bankruptcy: A Step-by-step Guide to Getting Back on Your Financial Feet. Tracys Landing, MD: Pellingham Casper Communications, 1998. Print.

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