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Debt Reaffirmation – What is It?

- Updated October 26, 2018

Before and during a bankruptcy, creditors will encourage the consumer to sign a debt reaffirmation document. This agreement is a promise to the creditor that the consumer will pay the debt after the bankruptcy. So, the debt isn’t removed during the bankruptcy, and the consumer is still obligated to pay it afterward.Consumers can be guilted into reaffirming their debts by creditors because they never wanted to file for bankruptcy in the first place and legitimately want to repay their debts. But consumers will try to reaffirm too much of their debt, and all the benefits bankruptcy was supposed to achieve can be lost.Since reaffirming debt in a bankruptcy is not usually a wise idea, the agreement must be permitted by the court. Three conditions the court considers when reviewing a reaffirmation agreement are:

The reaffirmations that are most likely to be approved by the court are those involving auto loans because transportation is viewed as crucial to most consumers.When it comes to keeping your car after a bankruptcy, however, reaffirmation isn’t the only way to do it. Many car manufacturers would rather have the payments on a car instead of the car itself, especially nowadays with the demand for cars in the toilet. So, it’s likely that as long as you keep making the payments, you can keep the car.One of the only benefits of reaffirming debt is that it can help to rebuild your credit score more quickly after a bankruptcy because a debt will carry over. However, this is only true if you keep up with the payments on the debt; otherwise, reaffirmation was most likely a mistake.Reaffirmation has several other names that consumers should recognize like reviving, re-establishing and re-aging. Also, reaffirmation does not only occur during bankruptcies. Consumers need to be extremely careful because collectors can attempt to persuade or even outright trick a consumer into reaffirming an uncollectible debt.Once the consumer has done this, the statute of limitations resets and the collector is free to try and collect the debt once again completely legally. This means that the collector can use legal collection tactics such as wage garnishments and lawsuits.The statute of limitations of forced collection for credit card debt is usually between three to six years. A defaulted debt stays on your credit report for seven years after collection begins or the debt is charged off, whichever occurs first. So, it doesn’t reset every time the debt may be sold off or purchased during those seven years, which is good news for the consumer.Consumers should be wary of notices sent by collection agencies asking for some sort of affirmation of the debt in question to be sent back because this is usually enough to effectively reaffirm the debt. Although verbal affirmations don’t usually hold up in court, it’s wise not to admit to anything a seemingly friendly debt collector might ask over the phone.A good rule of thumb is to admit nothing up-front and require everything in writing. Ask the collection agency to sign a written statement that outlines the specifics of the debt including the delinquency date and original creditor. Also, this statement should confirm that the agency has the proper authority to be collecting on this debt at this time.Most collectors will not sign a statement like the one outlined above because they either cannot legally sign it or realize that collecting from this particular consumer appears to be more trouble than it is worth.All in all, debt reaffirmation is rarely a smart financial decision in bankruptcy or otherwise. Thus, it’s best to avoid them during bankruptcy and take precautions not to accidentally agree to them at other times. Of course, it’s always wise to keep track of your debts, but it can be especially useful when a collector attempts to collect an expired debt from you.

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