What Happens If I Default on a Reaffirmation Agreement?

An enforceable reaffirmation agreement keeps you personally liable for the agreed debt despite the discharge in that Chapter 7 bankruptcy case. If you later default, the creditor may use remedies allowed by the agreement and applicable law, including repossession and a claim for a legally recoverable unpaid balance. Whether the debt could be discharged in a later bankruptcy requires a separate review. You may rescind the agreement by notifying the creditor before discharge or within 60 days after the agreement is filed with the court, whichever is later. Source: 11 U.S.C. § 524(c)(4).

Discharge and alternatives to reaffirmation

You must list all debts in Chapter 7. Whether a debt is discharged depends on bankruptcy law and the facts, not simply which debts you choose to keep. A secured creditor’s lien may survive discharge even when your personal liability does not. Sources: U.S. Courts: Chapter 7 bankruptcy; U.S. Courts: discharge in bankruptcy.

Reaffirmation is not the only possible way to keep secured property. For eligible personal property, redemption may be available. Your options, deadlines and risk of repossession depend on the collateral, loan and applicable law. Source: 11 U.S.C. § 722.

Repossession, foreclosure and remaining balances

Repossession does not by itself erase a car-loan balance. After sale of the car, a lender may seek a deficiency if the debt remains enforceable and applicable law permits it. A valid bankruptcy discharge can eliminate personal liability for a dischargeable debt; an enforceable reaffirmation agreement can preserve that liability. Home foreclosure has different rules. Washington law generally bars a deficiency on the obligations secured by a deed of trust after a nonjudicial trustee’s sale under that deed of trust, subject to statutory exceptions. Have the loan, sale and bankruptcy documents reviewed before assuming that any balance is owed or forgiven.

Affordability and cosigner obligations

Before reaffirming, compare the options and consider the collateral’s value, the remaining balance, your budget and the risk of future default. A low payment or small balance does not establish that future payments will be affordable. Reaffirming does not by itself release a cosigner from the loan, and your discharge generally does not eliminate another person’s liability. Source: 11 U.S.C. § 524(e). Get advice about both your obligations and the cosigner’s exposure before signing.

Official bankruptcy resources

Related reading: Bankruptcy and home foreclosure.

Discuss your options

Over the past 34 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situation. We can review whether bankruptcy may help stop your garnishment and address your debts through a repayment plan. Sources: 11 U.S.C. § 362(a)–(d); U.S. Courts: Chapter 13 bankruptcy. If money has already been garnished, recovery may be possible in some cases, depending on the timing of the transfers, applicable exemptions and other legal requirements. A refund is not automatic or guaranteed. Sources: 11 U.S.C. § 547(b)–(c), (e)–(g); 11 U.S.C. § 522(g)–(i); 11 U.S.C. § 550(a). But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.