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What is a reaffirmation agreement?

Most people in Vancouver who decide to file a petition in bankruptcy expect to have their debts eliminated or significantly reduced. Sometimes, however, a debtor may find benefits to agreeing with the creditor to repay the debt in full even though the obligation is eligible to be entirely discharged in the bankruptcy proceeding. When this happens, the debtor may elect to enter into a "reaffirmation agreement" with the creditor.

Perhaps the most common use of reaffirmation agreements involves automobiles or other items of personal property that are subject to a security interest, or lien, held by the creditor. If the bankruptcy proceeding concludes by discharging such a debt, the creditor may still foreclose its lien and take possession of the vehicle. The debtor may be able to prevent repossession by entering into a reaffirmation agreement with the creditor that holds the security interest.

The agreement must be in writing and signed by both the debtor and the creditor. The debtor must also submit a statement of current income and expenses that shows that the net income after paying expenses is sufficient to continue paying on the original obligation. The agreement must be filed with the court before the order of discharge is issued. If the debtor is represented by an attorney, the attorney must file a written certification stating that the debtor has been advised of the legal consequences of the agreement, including the consequences of default. If the debtor has no attorney, the reaffirmation agreement must be approved by the court.

Anyone who has been asked to sign a reaffirmation agreement, or who is thinking about asking a creditor to sign one, may wish to consult an experienced bankruptcy attorney for advice about foregoing the chance to discharge what may be a significant obligation.

Source: FindLaw, "Chapter 7: Debt Discharge," accessed on March 5, 2018