When you file for bankruptcy you must list all of your debts and assets on your bankruptcy petition.  Some of your debts are secured by assets, which basically means that if you don’t pay on those debts they will take the asset back.  Examples of secured assets include your car, your house, and furniture you buy using the store credit card.

So say you filed for bankruptcy and at the time of filing you had a car that you were making payments on, after you file for bankruptcy the car loan lender will contact your attorney and ask them what the debtor wants to do with the car.  If the debtor wants to keep the car he or she must sign a reaffirmation agreement and have it filed with the court.  A reaffirmation agreement basically says that the debt that is being reaffirmed will SURVIVE the bankruptcy and the debtor will continue to be responsible for that debt post-bankruptcy.

What happens if you don’t sign the reaffirmation agreement?

Typically if you don’t sign a reaffirmation agreement (on a vehicle or goods) the creditor has the right to take back the good either via a repossession or a voluntary surrender.  Once the item is taken back then debtor will not be responsible for the unpaid debt.

Why does the reaffirmation need to be filed in court?

The reaffirmation needs to be filed in court because the judge will have to determine whether or not “reaffirming” the debt is in the best interest of the debtor.  Example: debtor makes $2,000 a month and has a $1,000 monthly car payment for a BMW 750il.  If the debtor attempts to reaffirm the debt on this vehicle it may not be granted by the judge because clearly it is not in the best interest of the debtor to reaffirm the debt based on his income and the monthly payment.

Can the reaffirmation agreement be negotiated?

Sometimes reaffirmation agreements can be negotiated especially the interest rate.  A debtor’s attorney can call to attempt to lower the interest rate on goods(cars) in order to make the reaffirmation agreement more manageable for the debtor and in order to obtain court approval.