reaffirmation agreement
A voluntary agreement made during bankruptcy to continue paying a specific debt in exchange for keeping the asset.
Example
“He signed a reaffirmation agreement to keep his car during Chapter 7 bankruptcy.”
Memory Tip
REAFFIRM — you choose to keep the debt and the asset that goes with it.
Why It Matters
A reaffirmation agreement is important because it allows you to keep assets you want to preserve during bankruptcy, such as a car or home, by committing to continue making payments on the debt. Without reaffirming, the debt may be discharged, meaning you could lose the asset even though you wanted to keep it.
Common Misconception
Many people mistakenly believe that reaffirming a debt eliminates it or reduces what they owe. In reality, reaffirmation means you are legally binding yourself to continue paying the full debt after bankruptcy, so the creditor can still pursue collection if you stop paying.
In Practice
Suppose you file for Chapter 7 bankruptcy with a car loan balance of $12,000 remaining on a vehicle worth $15,000 that you want to keep. You can sign a reaffirmation agreement to continue paying the $350 monthly payment for the remaining 36 months, allowing you to retain the car instead of having it repossessed and the remaining debt discharged.
Etymology
From Latin 'reaffirmare' meaning to affirm again.
Common Misspellings
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