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Reaffirmation of Debts in Bankruptcy
A reaffirmation of a debt in a bankruptcy is a voluntary agreement between a debtor and a creditor. Under this arrangement, the debtor agrees to pay all or a portion of an otherwise dischargeable debt. An agreement by a debtor to continue paying a dischargeable debt after the bankruptcy is usually made for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession.
For a reaffirmation of debt to be valid, the debtor must fully understand that it would be entitled to discharge of this indebtedness in bankruptcy. Typically, a debtor will reaffirm that it wishes to repay the debt in return for additional consideration offered by a creditor such as an agreement to continue to extend credit to the debtor company at the conclusion of the bankruptcy case. In some situations, the bankruptcy court must approve reaffirmation of pre-petition debts.
A written agreement to reaffirm a debt must be filed with the Bankruptcy Court. Reaffirmation agreements are subject to bankruptcy court approval. The reaffirmation agreement must contain a clear and conspicuous statement that acknowledges that the agreement is not required under U.S. bankruptcy law, and the reaffirmation agreement must be signed prior to discharge of the bankruptcy in order to be enforceable.
The debtor must be notified that the agreement may be rescinded by giving notice to the creditor any time prior to the bankruptcy discharge, or within sixty days after the agreement is filed with the Court, whichever is later. The attorney for the debtor must file an affidavit certifying that the agreement represents a fully informed and voluntary agreement. [If an attorney does not represent the debtor, the Court must approve the reaffirmation agreement after proper disclosures to the debtor, and only if the Court finds that reaffirmation is in the best interest of the debtor].
Copyright 2009 by Michael C. Dennis. Mr. Dennis is a consultant and the author of several books relating to credit management. He can be reached by email at mcdennis13@yahoo.com