A reaffirmation agreement is a contract you sign during Chapter 7 bankruptcy to keep your car and continue making loan payments. By reaffirming, you agree that the car loan survives your bankruptcy discharge. You remain personally liable for the debt, and the lender agrees not to repossess as long as you stay current.
Reaffirmation is the most common way to keep a financed vehicle in Chapter 7 bankruptcy.
How Reaffirmation Works
After you file Chapter 7, you file a Statement of Intention indicating what you want to do with each secured debt. For a car you want to keep, you state your intention to reaffirm. The lender then sends a reaffirmation agreement, which you sign and file with the court.
What You Are Agreeing To
By signing the reaffirmation agreement, you are agreeing that:
- The car loan is not discharged in your bankruptcy
- You remain personally liable for the full balance
- The lender keeps its lien and its right to repossess if you default
- If you later default and the car is repossessed, you could owe a deficiency balance
Court Approval
If you have an attorney, your attorney must certify that the reaffirmation does not impose an undue hardship. If you are filing pro se, the court holds a hearing to evaluate whether the reaffirmation is in your best interest. The judge may decline to approve it if the payments appear unaffordable.
Alternatives to Reaffirmation
- Redemption: Pay the lender the current fair market value of the car in a lump sum (Section 722). Useful when you owe much more than the car is worth.
- Ride-through: Some circuits allow you to keep the car by simply continuing payments without signing a formal agreement. Not available everywhere.
- Surrender: Return the car and discharge the remaining balance.