August 20, 2019

Reaffirmation of Debt Need Not be Under Same Terms as Original Loan

negotiation with credtorsMost people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans.  But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?

This past March, I discussed redemption of property in Chapter 7.   Redemption of property is a viable option but it is far less common than “reaffirmation” of debt.

Why Do You Need to Reaffirm?

Secured loans actually contain two different kinds of obligations.   On one hand, you obligate yourself personally to pay a particular debt.  This is typically in the form of a promissory note.  The second layer of obligation ties the specific item of property to the loan.  This is called a security agreement.

When you file a Chapter 7 and a discharge is issued by the judge, your personal liability on your secured debt is extinguished.  This is why payments on a non-reaffirmed car loan or home loan will not be reflected on your credit reports.  You have no personal obligation to pay.  However, a Chapter 7 discharge does not extinguish the lender’s security interest against property.  This is why a vehicle lender can repossess or a mortgage company may foreclose to recover property.   In such a situation you would not have any personal liability for any deficiency amount.

A reaffirmation serves two main purposes:

  1. you will have the certainty of knowing that you are once again in a contractual relationship with the lender.  If you do not reaffirm, you could wake up one day to find that your vehicle has been repossessed or that you are being foreclosed upon.
  2. secondly, payments on a reaffirmed debt will appear as positive information on your credit reports.  This means that your credit score will recover more quickly

Can You Negotiate Better Terms in a Reaffirmation?

Because a reaffirmation agreement is a new contract between you and your lender, you absolutely can negotiate different terms.  I have negotiated reduced payments, lower interest rates and reduced balances on furniture, electronics, and vehicles.  I have also negotiated lower payments on 2nd and 3rd mortgages.

It has been my experience that some lenders will just not play ball.   They would rather incur the expense of recovering, storing and reselling a used item.   I think this attitude of  “we do not negotiate with debtors” is silly and counterproductive, but some lenders take this position (I suspect that some of these lenders do not have the staff or protocol for handling a negotiated debt).

On the other hand, many lenders will agree to a deal with terms a lot better than the original contract.  But you do have to ask, and, of course, if you agree to any terms, you must live up to the deal.  Reaffirmation agreements can be canceled by the debtor within 60 days after the agreement is entered, or the case is closed, whichever comes first.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. I’m running into some issues regarding our Chapter 7 that we filed in October 2008. In our voluntary petition on the page, Chapter 7 Individual Debtor’s Statement of Intention…we have an “X” under the box “debt will be reaffirmed pursuant to 11 U.S.C 524(c). This is the only spot in all of the paperwork, even after the petition, that we see this property listed in this fashion. I have called the mortgage company and all they can tell me is that the case is completed but all the statements they send every month say “for information purposes only.” This mortgage is not listed on our credit report. I just tried looking at PACER.GOV for any solid answers but nothing states “Reaffirmed.” What is my next route I should take? Are we reaffirmed according to the initial petition? Also, my husband and I just made a Revocable Trust. Can we put this property in the trust? Please help me. I don’t know who to ask and I stumbled across your website of knowledge.

  2. Kelly, my understanding is that if you do not sign a formal reaffirmation agreement, your mortgage loan is not reaffirmed. Simply checking the “reaffirmed” box in the Statement of Intention will not serve to bind the lender. As far as where you stand with regard to title issues and your Revocable Trust – those are issues that require the advice of a lawyer in your jurisdiction.

  3. I did some more digging around and I found that in December of 2008 (a month after we filed we actually filed 11/2008) they changed the affirmation rules. See below>>>>
    (dd) Rule 4008 (conforming) is amended to reflect the 2005 Act’s addition of §§ 524(k)(6)(A) and 524(m) to the Bankruptcy Code. The provisions require that a debtor file a signed statement in support of a reaffirmation, and authorize a court to review the agreements if, based on the assertions on the statement, the agreement is presumed to be an undue hardship. The rule revision requires that an accompanying statement show the total income and expense figures from schedules I and J and an explanation of any discrepancies. This will allow the court to evaluate the reaffirmation for undue hardship as § 524(m) requires.

    Now, since we did not have this rule at the time of filing, would the checked boxes and signature at the bottom of the page count as us reaffirming the debt?

  4. Brenda Scott says

    I am a co-signer on my son’s home mortgage loan. He has been out of work over a year and is receiving unemployment benefits, has a lot of credit card debt and is considering Chapter 7. He is not behind on the mortgage and is not considering giving up his home. He owes more on the house than what it is worth. If he files Chapter 7 and continues to pay his mortgage, will his bankruptcy affect my credit rating?

  5. Sue White says

    It states here that “If you do not reaffirm, you could wake up one day to find that your vehicle has been repossessed or that you are being foreclosed upon.”

    I thought that if the debtor made payments as originally agreed, foreclosure would not happen. Can the mortgage holder actually foreclose or should it say,
    “If you don’t pay, you could wake up one day…” But surely that could happen with or without reaffirmation!

    Most attorneys seem to be strongly advocating against reaffirming, even if the debtor has lots of equity in the house and fully intends to keep paying. Of course, these debtors won’t have the benefit of re-establishing credit thru paying, but are they actually risking foreclosure by not reaffirming?

  6. Sue, I think it is very unlikely that a lender would foreclosure on a loan where the payments are current. However, if you file a Chapter 7 and do not reaffirm, you are discharging your personal liability for the mortgage. The lender continues to have a lien against the property but it loses any right to pursue you personally for unpaid debt. The payments you are making are in essence voluntary. Every mortgage note that I have ever read provides that a bankruptcy constitutes a default event. So, while a foreclosure would be unlikely it would not be impossible or improper legally.

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