Many people wonder about the pros and cons of entering into a reaffirmation agreement with one or more of secured creditors. On the plus side, reaffirming a secured debt gives you a degree of certainty – you are once again in a contractual relationship with your creditor. You know how much you are supposed to pay each month and you know the payoff balance, interest rate and terms of the agreement.

Also, you may be able to negotiate a more favorable deal when you reaffirm. This option is less true with motor vehicles, but the negotiation option can work well when you are dealing with furniture or electronics.

With the exception of cars, secured creditors are often not set up to liquidate used merchandise. And, since you already have possession of the property (collateral), many lenders are happy to negotiate more favorable terms with you so they can avoid the hassle of recovering and disposing of property. Imagine the headache that would result from trying to repossess a used sofa or refrigerator, having it moved, cleaned, repackaged, and sold as used. A creditor would be luck to recover half the original value.

Reaffirmation can also help you rebuild your credit because you are re-assuming personal liability for payments, and regular, timely payments usually will be reported as positive information to the credit bureaus.

On the other hand, when you reaffirm, you are re-obligating yourself personally to pay an installment note. If you should default, you are fair game for all collection activities including wage garnishment. It would be as if you never filed bankruptcy with regard to that particular debt.

Reaffirmation agreements must be in writing, signed by you and the creditor and approved by the bankruptcy judge

At least once or twice a month, I get an email from a frustrated individual who has received his bankruptcy discharge, and has continued to make monthly payments, but sees no mention at all about these payments on his credit report.

It is not enough that you checked the “reaffirm” box on your bankruptcy Statement of Intention. You and your creditor have to complete a formal reaffirmation agreement.  These agreements usually consist of about ten pages of difficult legal language and your attorney has to document that your budget can handle the reaffirmed payment. Your attorney also has to sign the reaffirmation agreement and assert in writing that he thinks that reaffirmation is in your best interest.

Usually, reaffirmation agreements are prepared by the creditor or creditor’s attorney.   Sometimes lenders simply will not cooperate – they may not have any objection to accepting your payment and leaving you alone regarding possession, but they may decline to offer a reaffirmation agreement to you.

I have also seen situations where lenders fail to file the signed reaffirmation documents on time and the reaffirmation agreement does not get court approval even though the debtor and his attorney did everything they were supposed to do.

If you and your attorney confer and decide that reaffirming a particular secured debt makes sense for you and that you can afford the reaffirmed payment, you should encourage your lawyer to quickly and aggressively request a reaffirmation agreement from your creditor.  Once your case is discharged and closed, it is difficult and expensive to try to re-open a closed case solely for the purpose of reaffirming a debt.