What is a reaffirmation agreement?
A reaffirmation agreement is a court-approved contract in which a borrower promises to remain personally liable on a secured debt, typically a mortgage, after a bankruptcy discharge, allowing them to keep the property securing the loan.
In bankruptcy, discharge typically erases personal liability on debts. A reaffirmation agreement is a formal contract that reverses this effect for a specific debt, usually a home mortgage. By reaffirming, the borrower agrees to be personally liable again on that debt even after the bankruptcy case closes.
Borrowers in the Trenton Metro area and elsewhere most often use reaffirmation agreements to keep their homes. When someone files for bankruptcy protection, they risk losing the house if the mortgage debt is not reaffirmed. By entering a reaffirmation agreement, the borrower signals to the lender that they intend to continue making payments and wish to retain ownership of the property.
The agreement must be filed with the bankruptcy court and typically requires the debtor's attorney to certify that the borrower understands the consequences of reaffirming. If the borrower defaults on the reaffirmed mortgage after bankruptcy closes, the lender can pursue foreclosure just as it would outside bankruptcy. This means the borrower has traded the bankruptcy discharge protection on that specific debt for the right to keep the home.
Reaffirmation agreements are most common in Chapter 7 bankruptcy cases, where debts are liquidated, and in Chapter 13 plans where a borrower restructures debt. Borrowers considering reaffirmation should consult with a bankruptcy attorney to understand the long-term implications for their finances and home ownership.