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Understanding reaffirmation agreements

Many of the misunderstandings Merrimack Valley residents may have regarding the bankruptcy process may be due to a misconceptions. For example, some may think that one can file for bankruptcy while still being able to keep a majority of his or her property or assets. This may not always be the case. Many may choose a Chapter 7 bankruptcy to discharge their debts and give them a fresh start. However, Chapter 7 cases are often called liquidation bankruptcies due to the fact that one may have to forfeit assets for sale to help repay his or her creditors.

Those debts that are absolved through bankruptcy are said to be discharged. However, there may be cases where a debtor wants to retain a debt in order to keep the property it is linked to. In this case, he or she may choose to enter into a reaffirmation agreement with a creditor. The website for the United States Courts says that by reaffirming a debt, the debtor recognizes that he or she will remain responsible for the debt even though it would otherwise be eligible for discharge. The creditor agrees to refrain from any aggressive action to collect on the debt provided the debtor meets his or her payment obligations.

According to the U.S. Department of Justice, certain conditions must be met in order for the court to approve it:

  •          The agreement must be voluntary.
  •          The accompanying financial obligation must not place too great of a strain on the debtor.
  •          The agreement must be in the best interest of the debtor.
  •          The agreement must be voidable any time prior to the date bankruptcy debts are to be discharged.

A debtor may also be able to cancel a reaffirmation agreement within 60 days of entering into one with a creditor. 

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