One of the most common reaffirmation agreements during bankruptcy is between a car lender and a debtor. A reaffirmation agreement is a contract between the creditor and the debtor stating that despite the bankruptcy filing the debtor is still responsible for paying the debt and agrees to continue paying as if there was no bankruptcy filing. In the case of a car loan, signing a reaffirmation agreement means that if the debtor fails to make payments on the car loan after bankruptcy, they can face vehicle repossession and they can be sued for the balance of the loan even after the car has been auctioned. Most Dallas bankruptcy attorneys will tell you to avoid filing a reaffirmation agreement; but there are a few instances where signing a reaffirmation agreement makes sense.
When Signing a Reaffirmation Agreement Makes Sense
- The debtor only owes a small amount on their car loan and the loan can be repaid within 12 months after the bankruptcy has been discharged. Of course, the debtor needs to have income to make those payments and that income should be stable and consistent. If a debtor is on unemployment benefits or is only working temporary or part-time jobs, signing a reaffirmation agreement even if the balance on the loan is low may not be wise.
- The debtor's monthly car payment is low. If a debtor is paying less than $200 per month on their car loan and they have a low car loan balance, it may not be so risky to sign the reaffirmation agreement during bankruptcy. However, if the debtor is unemployed or has limited income, it still may not be worth it to sign the reaffirmation agreement during bankruptcy.
- The debtor has a co-signer who is not part of the bankruptcy. If the debtor fails to sign the reaffirmation agreement during bankruptcy and the creditor may go after the co-signer. In this case, the debtor may decide to sign the reaffirmation agreement so that co-signer does not suffer. But even in this case, the debtor should make sure that they can actually make the payments and fulfill their obligations to the car loan before signing the reaffirmation agreement.