“Reaffirmation” is one of those words that is used quite frequently in the bankruptcy context, though often the debtor filing for bankruptcy protection does not fully understand the implications of a Reaffirmation, and in my humble opinion, that is not good enough.

When you sign a reaffirmation agreement, you – as the debtor in the case – agree that one of your debts does NOT get discharged by virtue of your bankruptcy.  Basically, you will still be on the hook for the full amount owed, even after your bankruptcy has been concluded, and if you default on your payments, the bank has every right to sue you, or make any other (legal) effort to collect the debt from you.

Why, you ask, would anyone want to do THAT…. especially since the point of every bankruptcy is a “fresh start” – to be debt free again.  The most common debts that get reaffirmed are those debts that are secured by a vehicle.  In the 9th Circuit (the federal Circuit in which Arizona is located), a debtor cannot keep a vehicle that he or she owes money on if the debt is not reaffirmed.  So, essentially, the choice becomes ‘keep your car and reaffirm the debt’ or surrender the vehicle.

Now, of course, you may think, “no brainer – I need my car – therefore I will reaffirm my debt.”  While this is often the initial reaction, it is not a good idea just to jump into a reaffirmation, simply because you think you need YOUR car. 

Here are some additional considerations to keep in mind:

  1. Is the car worth more than what you owe on the loan?
  2. Can you realistically afford your monthly payments?
  3. There are no other alternatives.

If the answer is “no” to any of these questions, then you really need to put some thought into the decision to reaffirm your debt.  Reaffirming a debt has serious consequences.  With a little planning, and some good counsel by your attorney, you would be surprised how many alternatives you have, without getting stuck with a huge car loan in the long run.