Primary tabs

In bankruptcy, a reaffirmation is an agreement that a debtor and a creditor enter into after a debtor has filed for bankruptcy, in which the debtor agrees to repay all or part of an existing debt after the bankruptcy proceedings are over and the property subject to the reaffirmation is not subject to partition in the proceedings. Also referred to as reaffirmation agreement. This reaffirmation agreement essentially serves as a new contract which reaffirms existing debt. For instance, a debtor might make a reaffirmation agreement with the holder of a car note to prevent the partition of the car. This would allow the debtor to keep the car in exchange for his promise to continue paying the debt after the bankruptcy proceedings.

11 U.S.C. § 524 lays out the process for a debtor and creditor to enter into a reaffirmation agreement. § 524(c)(1) requires that the agreement be made before the debt was discharged; § 524(c)(2) and § 524(k) require that the debtor is fully disclosed, in clear and conspicuous writing, on which amounts are subject to the reaffirmation agreement; § 542(c)(3) requires that the debtor is informed on the terms of the agreement and that is does not impose undue hardship on the debtor; § 542(c)(4) allows the debtor to rescind a reaffirmation agreement within sixty days after it is filed with the court; and § 542(c)(6) requires that the reaffirmation agreement does not present an undue hardship and is in the best interest of the debtor, if they are not represented by counsel.  An Eighth Circuit case, Venture Bank v. Lapides, pointed out that these provisions reflect Congress’s intent to protect debtors from unduly pressured judgments about whether to repay dischargeable debts resulting in unequal bargaining positions.

The enforceability of reaffirmation agreements does not end at § 542, however. As In re Bennet, a Ninth Circuit case stated, since reaffirmation agreements are, at their core contracts, they must also be enforceable under the applicable state’s body of contract law. Furthermore, courts generally disfavor enforcing reaffirmation agreements The Eastern District of Pennsylvania, Bankruptcy Court in In re Bellano provides the rationale for this disfavored treatment, emphasizing that reaffirmation agreements are “in tension with a fundamental bankruptcy policy; to wit, the ‘fresh start’ that attends a bankruptcy discharge. If approved, the reaffirmation agreement would reestablish the personal liability which would otherwise be discharged.”

[Last updated in December of 2020 by the Wex Definitions Team]