When you reaffirm a debt in Chapter 7 bankruptcy, you enter into a contract with your lender (called a reaffirmation agreement) that makes you personally liable for the obligation despite your bankruptcy discharge. Many debtors reaffirm secured debts in order to keep the asset pledged as collateral for the loan (typically a car or other motor vehicle). But in most cases, the court must approve your reaffirmation agreement at a reaffirmation hearing before it will become effective. Read on to learn more about what to expect at a Chapter 7 bankruptcy reaffirmation hearing.
For more information on what happens to secured debts in Chapter 7 bankruptcy, see our topic on Your Debts in Chapter 7 Bankruptcy.
What Is a Reaffirmation Hearing?
Most reaffirmation agreements must be reviewed by a bankruptcy judge to make sure they are in the debtor’s best interest and that the reaffirmed debt will not pose an undue hardship on the debtor. When a lender receives your completed reaffirmation agreement, it will file it with the bankruptcy court. The court will then schedule a hearing to discuss the reaffirmation and decide whether or not to approve the agreement.
If you want your reaffirmation agreement to be approved, you must appear at your reaffirmation hearing. In general, reaffirmation hearings tend to be less formal than other bankruptcy court hearings. The hearing gives the judge an opportunity to discuss the particulars of the agreement and let you know whether he or she thinks approving it will be in your best interest.
To learn more about how to reaffirm a debt in Chapter 7 bankruptcy, see Reaffirmation Agreements in Chapter 7 Bankruptcy.
What Happens at a Reaffirmation Hearing?
At the reaffirmation hearing, the judge will explain any concerns he or she has with the terms of your agreement. In addition, the judge will ask you certain questions to determine whether reaffirming the debt is in your best interest.
The following are some of the most common questions the judge may ask you at a reaffirmation hearing:
- What do you think your car (or other property) is worth?
- Can you afford to make the monthly payments under the reaffirmation agreement?
- Has your income or expenses changed since filing your case?
- Do you receive help from your friends or family to make the payments on this debt?
- Have you ever missed a payment on this debt?
- Are you current with all of your payments?
- Do you understand that if you reaffirm you will be personally liable for this obligation after your bankruptcy case is closed?
What If the Bankruptcy Judge Doesn’t Approve My Reaffirmation Agreement?
If the judge thinks that reaffirming the debt is not in your best interest or doubts your ability to make the monthly payments, he or she will not approve the agreement. The following are some of the most common reasons the judge may deny your reaffirmation agreement:
- Your monthly budget shows that you can’t afford to make the required payments.
- The amount of the reaffirmed debt exceeds the value of the property you want to keep.
- The agreement has a really high interest rate.
- You are trying to reaffirm a debt that is not secured. (For example, if the balance of your first mortgage exceeds the value of your home, your second mortgage is technically not secured even if the lender has a lien on the property).
If the judge doesn’t approve your reaffirmation agreement, it doesn’t mean that you can’t keep the property. Certain courts have held that if you did everything you were supposed to in order to reaffirm the debt, the lender can’t foreclose on or repossess your property as long as you continue to make your regular payments. Depending on where you live, the judge may also give you a protective order to that effect.
But even if the judge doesn’t provide you a formal order stating that you can keep the property, most lenders are happy to let you hang on to your property as long as you make your monthly payments.