1. Reaffirmation
  2. Understanding Reaffirmation
  3. Reaffirmation Helps Borrowers
  4. Example of reaffirmation


Reaffirmation may be a variety of agreements somebody makes with an investor to repay some or all of a debt despite going through bankruptcy proceedings. Once an individual file for bankruptcy, they are doing, therefore, to be eased of a debt burden they can’t pay.

By moving into a reaffirmation agreement, a borrower usually maintains possession of an asset command as collateral such as a home or an automobile, as long as they’ll repay the debt owed on its specific loan.

  • Reaffirmation is an agreement by somebody, to an investor, to repay some or all of their debt.
  • Debtors create reaffirmation agreements purely voluntarily.
  • When a recipient reaffirms a debt, this can be noted by credit reportage agencies, which then register that the person can create regular on-time payments.
  • Reaffirmations usually end in borrowers not having to cede their pledged collateral to debtors. Chapter seven bankruptcy is primarily once reaffirmation is employed.

Understanding Reaffirmation

Debtors create reaffirmation agreements purely voluntarily. They’re legal documents, however, an individual cannot attend jail for violating them. If somebody fails to form their scheduled payments and breaches the agreement, the investor takes possession of the collateral, if they therefore select.

Reaffirmation isn’t invariably attainable for individuals filing for bankruptcy. The Bankruptcy code stipulates that the debtor’s lawyer should file an announcement with the court affirming that the consumer will repay the debt while not acquiring additional personal monetary hurt. Generally, to affirm a debt, an individual should be current on the payments of that individual loan.

Reaffirmation is primarily utilized in Chapter 7 bankruptcy. Chapter seven focuses on the liquidation of assets and therefore the order during which the debt is to be repaid. Chapter seven is primarily used for people having an issue meeting their debt obligations.

Chapter seven absolves the recipient of the debt that they need to pay, however, it doesn’t take away the very fact that the investor will claim the assets that are pledged as collateral. Your liability on the debt is gone however not the lender’s right to require your assets. Reaffirmation protects against an investor taking your assets.

Reaffirmation Helps Borrowers

Some borrowers need to continue creating their loan payments while not researching the formal reaffirmation method. However, reaffirmation has some advantages for the recipient. Once a recipient reaffirms a debt, this can be noted by credit reportage agencies, which then register that the person is creating regular on-time payments.

This usually helps a person attempt to reconstruct their credit once the bankruptcy. Borrowers who don’t affirm a debt, however, usually will not see their payments registered with credit reportage agencies.

Borrowers who merely have to be compelled to absolve themselves of their debts and don’t seem to be doubtless to form regular payments don’t stand to realize something from the reaffirmation method. Reaffirmation will create a recipient chargeable for a debt and is organized through a proper agreement with the courts and is thus a legal method for the recipient to safeguard themselves and their assets.

It is within the recipient’s best interest to travel through a legal method, like reaffirmation, whenever attending to resolve or manage monetary obligations.

Example of reaffirmation

Let’s say, John owns a home and has $200,000 left to pay on his mortgage. His monthly payments of principal and interest quantity to $1,305. John recently lost his job throughout a recession and has currently been out of labor for one year, unable to seek out employment. He has depleted his savings and is unable to form his mortgage payments.

John arranges along with his mortgage company reaffirmation that’s approved in court. He reaffirms the debt he owes on the home mortgage, with an opportunity to renegotiate payments with the investor. He and his mortgage company conform to a lower monthly mortgage payment or a lower interest rate during the reaffirmation method. John will meet these lower payments with some aspect jobs he has been ready to realize.

The reaffirmation has prevented John from having to own his home foreclosed. If he fails to form the mortgage payments below the new terms, the investor can take possession of his home and begin foreclosure proceedings.