A reaffirmation agreement is simply an agreement that says you promise to pay a debt that was discharged (cancelled) by the bankruptcy.

Generally speaking reaffirmation is something you want to avoid. After all, when you declare bankruptcy you eliminate your debts. Why would you want to revive them?

There are situations where you will want to consider signing a reaffirmation agreement.

Let’s say you owe Sears $450.00 on a credit card. Sears may offer you a deal like this: Even though you are cancelling the debt to Sears by filling bankruptcy if you promise to pay Sears anyway they will let you keep the credit card account open. They might agree to lower your interest rate.

Another situation where you might wish to sign a reaffirmation agreement is where the creditor is threatening to repossess your personal property if you refuse to sign the reaffirmation agreement.

Let me explain: Let’s say you purchase something, for example a car, and you finance the purchase with a secured loan. Of course, if you default on the loan the lender can repossess the car.

But what if you file for bankruptcy but stay current on your car payments? Until the law changed a few years ago as long as you stayed current on the loan payments the lender could not repossess your car. So there was little reason to reaffirm.

But under the current state of the law the lender does have the legal right to repossess the car (or other personal property) even if you are current if you refuse to sign a reaffirmation agreement.

You might ask: "If I plan on keeping the car why shouldn’t I sign the reaffirmation agreement? After all I do plan on keeping the car any paying for it?"

The reason you should try to avoid signing the agreement is that you might change your mind about keeping the car. A year after the bankruptcy you might realize that you can’t afford to keep up the payments. You may default and the bank might repossess the car. If the value of the car is less than the amount you owe the bank you will be sued for the difference. You won’t be able to discharge that debt in bankruptcy because you only recently declared bankruptcy. (You have to wait 8 years.)

The subject of dealing with vehicles in bankruptcy is dealt with in detail here.

The situation is difference with respect to real estate. You may keep your real estate and avoid foreclosure as long as you do not default on the mortgage payments. This procedure is referred to as "pay and retain". My clients almost never reaffirm their real estate loans.

If you wish to reaffirm a debt you must do so before the case closes (usually 60 days from the date of the 1st meeting of creditors).