What to Expect at a Chapter 7 Reaffirmation Hearing

Bankruptcy eliminates many debts, and a reaffirmation agreement is a contract with your lender that makes you personally liable for a debt despite your bankruptcy discharge. Debtors typically sign one to keep a car or other asset pledged as collateral for the loan. Because reaffirming undoes some of the protection your discharge provides, most agreements have to go before a judge at a reaffirmation hearing before they take effect. Here's what to expect at that hearing, when you can skip it, and what your options are if the judge says no.

What Happens at a Reaffirmation Hearing?

At the hearing, the judge reviews your agreement and asks you questions to figure out whether reaffirming the debt is really in your best interest. Expect the proceeding to be shorter and more informal than other bankruptcy hearings, and many courts now allow you to appear by phone or video instead of in person.

Here are some of the most common questions a 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 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'll be personally liable for this obligation after your bankruptcy case is closed?

Do You Need a Reaffirmation Hearing If You Have a Lawyer?

Not always. If a lawyer represents you in negotiating the reaffirmation agreement, your attorney can sign a certification stating the agreement doesn't impose an undue hardship on you and that you understand its legal effect. Once that certification is filed with the agreement, the reaffirmation generally takes effect without a court hearing (11 U.S.C. § 524(c).)

A hearing is still required in two situations:

• Your bankruptcy paperwork shows your monthly income won't cover your expenses plus the new payment, which creates a presumption that reaffirming is an undue hardship (11 U.S.C. § 524(m).)
• You're negotiating the agreement on your own, without an attorney, since there's no lawyer around to certify it for you.

What Happens If the Judge Doesn’t Approve My Reaffirmation Agreement?

If the judge doubts you can afford the payments or doesn't think reaffirming is in your best interest, they'll deny the agreement. Here are some of the most common reasons a judge may deny one:

• Your monthly budget shows that you can’t afford the required payments.
• The amount of the reaffirmed debt exceeds the value of the property you want to keep.
• The agreement carries a really high interest rate.
• You're trying to reaffirm a debt that isn't secured. (For example, if the balance of your first mortgage exceeds the value of your home, your second mortgage is technically unsecured even if the lender has a lien on the property. This doesn't mean you can strip the mortgage; in Chapter 7, the lien survives even when the debt has no security value backing it. However, lien stripping is available in Chapter 13, although not automatic. )

Reaffirming isn't your only option for handling secured debt in Chapter 7. The table below compares your main choices.

If you decide to redeem instead, you can redeem the property by paying your lender its current replacement value in a single lump sum (11 U.S.C. § 722.)

What Is a Reaffirmation Hearing?

A reaffirmation hearing is the court proceeding where a judge reviews your reaffirmation agreement to confirm it's in your best interest and won't create an undue hardship. Once your lender receives your completed agreement, it files it with the bankruptcy court, which then schedules the hearing to decide whether to approve it.

Can You Cancel a Reaffirmation Agreement? The Bottom Line

Yes. Even after a judge approves your reaffirmation agreement, you can still change your mind. You have the right to rescind (cancel) it any time before your discharge is entered, or within 60 days after the agreement is filed with the court, whichever comes later (11 U.S.C. § 524(c).)

To rescind, notify your lender in writing that you're canceling the agreement and file a notice of rescission with the bankruptcy court for the record. If you're unsure whether reaffirming a debt makes sense for your situation, talk it over with a bankruptcy attorney before your hearing so you can weigh reaffirming against redeeming or surrendering the property.

More Information

Want to dig deeper into the Chapter 7 process? Here's where to go next:

• See How Chapter 7 Bankruptcy Works for a full rundown of the process, from filing to discharge.
• Since debts covered by a reaffirmation agreement survive your case, check out Nondischargeable Debts to see what else won't be wiped out.
• Not sure Chapter 7 is the right fit? Read Comparing Different Bankruptcy Options to see how it stacks up against Chapter 13.