A reaffirmation agreement is a secondary contract which will survive the discharge of a Chapter 7. Reaffirmation agreements can only be approved by the bankruptcy court if there is some collateral attached to the property, such as a mortgage, vehicle, or some other secured interest attached to the debt. In the case of a vehicle, a reaffirmation agreement is necessary to keep the car beyond the bankruptcy discharge if the Debtor wishes to keep the vehicle. The Debtor should only sign the reaffirmation agreement on a vehicle if they can afford the payments, they are current on the payments, the car is insured, and the car is in good working condition. However, if the Debtor does not plan on keeping the car, or the Debtor is behind on payments then they should never sign the reaffirmation agreement. The reaffimation agreement must disclose to the court the balance owed, the interest rates, payment amount, and length of the payments.

When the bankruptcy code was amended in 2005, Congress put a provision requiring the bankruptcy judges to approve the reaffirmation agreement, and if necessary hold a hearing to make sure that the Debtor is not entering into the agreement which will not be an "undue hardship". What the "undue hardship" means is that the Debtor, understands the agreement, can afford the payments, believes it is in their financial interest, and understands that the debt will survive the bankruptcy. A reaffirmation agreement is voluntary both on the creditors part and the Debtor does not need to enter into the agreement. If you do however, reaffirm the a debt that debt will survive the bankruptcy and you will be on the hook for any future default.

When it comes to signing a reaffirmation agreement on a mortgage an experienced Chicago bankruptcy attorney will go through your options on whether to sign the agreement. Generally, speaking it is not advisable to sign a reaffirmation agreement for a mortgage in most cases. Especially in this type of real estate market when many borrowers are underwater on their mortgages, and cannot sell or get out of their properties. In Illinois, as long as you make payments on the mortgage after the bankruptcy the lien will survive and the mortgage company cannot foreclose because you did not sign the agreement. In the case of a second mortgage, it is almost never in a clients interest to sign a reaffirmation agreement for a second mortgage. Why?, because a second mortgage is a recourse loan meaning that if a property goes through foreclosure in Illinois, a judge in a foreclosure can enter a personal deficiency against the borrower. Generally, I will never let my client sign a reaffirmation agreement for a second mortgage. Experience matters when it comes to choosing a Chicago bankruptcy lawyer, and I have handled numerous bankruptcy cases for clients. If you are interested in a free consultation please feel free to call my office at 312-489-8182 and speak with me today!

Marc