Bankruptcy Reaffirmation Agreements

by Spilman Thomas & Battle, PLLC

As consumer bankruptcy filings remain an all-too-common occurrence, many lenders continue to find themselves in the often murky world of bankruptcy. As a result, on top of ensuring adherence to the numerous confusing regulations applicable to commercial loan transactions, lenders must navigate the federal bankruptcy laws. This article sheds some light on one bankruptcy process lenders are often faced with: reaffirmation agreements.

In a chapter 7 bankruptcy, the debtor’s secured personal property can be treated in one of three ways: the debtor can keep the property through a process called reaffirmation, surrender the property to the secured creditor, or keep the property by paying the secured lender for the property in one lump sum through a process called redemption. Chapter 7 debtors most commonly choose to reaffirm or surrender their property.

If a chapter 7 debtor chooses to reaffirm debt related to a secured claim, a reaffirmation agreement must be negotiated and signed by the debtor and the lender within 45 days after the first creditors’ meeting. See 11 U.S.C. § 521(a)(6); see also Bankruptcy Form B240A. The reaffirmation agreement is only enforceable if it is entered before the debtor receives a discharge in the bankruptcy case, and if the debtor does not rescind the reaffirmation agreement at any time prior to receiving the discharge or within sixty days after the reaffirmation agreement is filed with the Bankruptcy Court, whichever occurs later. See 11 U.S.C. §§ 524(c)(1), (4).

If the debtor fails to enter into a reaffirmation agreement within the 45 days after the first creditors’ meeting, the automatic stay, which goes into effect immediately upon the debtor’s filing of the bankruptcy petition and prohibits all creditors from undertaking any collection attempts, lifts and the creditor can pursue its non-bankruptcy collection rights. See 11 U.S.C. § 521(a)(6). However, since the reaffirmation process revives the debtor’s personal liability on the debt and allows lenders to receive payments from the debtor outside of the bankruptcy context and to maintain all state law rights upon non-payment, lenders should be mindful of this deadline to ensure they do not miss the chance to take advantage of the reaffirmation process. It is also important to note that, provided the lender does not coerce or harass a debtor, merely offering a reaffirmation agreement to a debtor does not violate the automatic stay. See In re Carter, No. 10-10459-8, Adversary No. 11-00069-8, 2012 WL 627769 (Bankr. E.D.N.C. Feb. 24, 2012).

If a debtor chooses to reaffirm and a reaffirmation agreement is signed and approved by the bankruptcy court, the debt subject to the reaffirmation agreement remains a personal liability of the debtor and is not discharged in the bankruptcy case. This means the debtor will be required to continue to pay the lender pursuant to the terms of the note (or to the terms of the executed reaffirmation agreement, which often modifies the payment terms). In return, the debtor is allowed to keep the property securing the loan. However, if the debtor fails to make payments after entering the reaffirmation agreement, the lender is entitled to take actions to collect on the loan as though the bankruptcy case never occurred – meaning the lender can repossess the property securing the loan and, if appropriate, seek a subsequent deficiency judgment. Reaffirmation agreements almost always relate to motor vehicles.

This process may seem relatively easy – how hard can it be to get a debtor to sign a reaffirmation agreement when they are desperate to keep their property – usually a car – after filing for bankruptcy? However, like most things, it is not quite so simple. Although debtors can sign reaffirmation agreements on their own (without an attorney involved in the process), the Bankruptcy Court must review the reaffirmation agreement if the debtor was not represented by an attorney during the course of negotiating the agreement to ensure the reaffirmation agreement does not impose an undue hardship on the debtor or the debtor’s dependent and is in the debtor’s best interest. See 11 U.S.C. § 524(c)(6). In addition, the Bankruptcy Court will review the reaffirmation agreement if the debtor’s monthly income does not exceed the total of the debtor’s monthly expenses (including the monthly amount required to reaffirm the debt), meaning there is a presumption of undue hardship. See 11 U.S.C. § 524(m)1.

If there is a presumption of undue hardship, the debtor must rebut this presumption by showing additional sources of funds are available to enable the debtor to make the monthly reaffirmation payments (either due to a change in circumstances after filing the bankruptcy petition – such as a new job – or a third party (such as a relative) offering to make the reaffirmation payments). If the debtor is represented by an attorney, the debtor’s attorney must sign an affidavit certifying the reaffirmation agreement does not impose an undue hardship on the debtor or, if there is a presumption the reaffirmation agreement creates an undue hardship, that in the attorney’s opinion, the debtor can make the monthly payments.

To better understand reaffirmation and to ensure that you are doing everything possible to protect your rights, you should contact knowledgeable legal counsel.

1This subsection of the Bankruptcy Code does not apply if the creditor is a credit union. See 11 U.S.C. § 524(m)(2)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Spilman Thomas & Battle, PLLC | Attorney Advertising

Written by:

Spilman Thomas & Battle, PLLC

Spilman Thomas & Battle, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.