What Is a Reaffirmation Hearing in Bankruptcy?

If you are thinking about filing for bankruptcy, it’s important to sit down with an experienced attorney first to talk through the various phases of the bankruptcy process and to get a better understanding of what is involved with you as the petitioner.

Reaffirmation Hearing in Bankruptcy

A reaffirmation hearing in bankruptcy is part of the process when a debtor decides to “reaffirm” a debt in a Chapter 7 bankruptcy. Let’s break this down a bit:

  1. Chapter 7 Bankruptcy: This type of bankruptcy is often called “liquidation” bankruptcy. In a typical Chapter 7 case, many of the debtor’s assets are sold, and the proceeds are used to pay off some of the debtor’s debts. However, not all debts are wiped out in a Chapter 7 bankruptcy, and certain assets may be exempt from liquidation.
  2. Reaffirmation: In the context of a bankruptcy, to “reaffirm” a debt means to voluntarily agree to remain liable for the debt even after the bankruptcy case concludes. This is often done for secured debts where the debtor wants to keep the collateral (e.g., a house or a car). By reaffirming the debt, the debtor continues to make payments on the debt and, in return, keeps the collateral.
  3. Reaffirmation Hearing: If a debtor decides to reaffirm a debt, and if the bankruptcy court determines there might be some question about whether the reaffirmation is in the debtor’s best interest or if the debtor is not represented by an attorney during the reaffirmation process, the court might set a reaffirmation hearing.At this hearing:
    • The judge reviews the terms of the reaffirmation agreement.
    • The debtor’s financial situation is assessed to ensure that they can afford to continue making the payments.
    • The judge determines whether the reaffirmation is truly in the debtor’s best interest.

    If the judge decides the reaffirmation is not in the debtor’s best interest or could impose an undue hardship, the judge can deny the reaffirmation agreement.

  4. Purpose: The primary purpose of the reaffirmation hearing is to protect debtors from making potentially harmful financial decisions and ensure they fully understand the implications of reaffirming a debt. Reaffirming a debt means that, even after the bankruptcy process is over, the debtor remains legally obligated to pay that debt. If they default on the reaffirmed debt in the future, the creditor can take action, including repossessing the property.

A reaffirmation hearing is a safeguard within the bankruptcy process that ensures that debtors are making informed and beneficial decisions when choosing to remain responsible for specific debts.

In certain situations, the court might decide to hold a reaffirmation hearing to determine whether or not the agreement should be approved. Certain properties may have been pledged with collateral when you originally took out a loan. If you don’t repay the loan, the lender is eligible to take certain pieces of the property.

Some of the most common secured loans include mortgages, car loans and loans for jewelry or furniture. You may choose to repay a secured loan as part of your Chapter 7 bankruptcy petition if you intend to keep the property. In doing so, you will be responsible for signing a reaffirmation agreement, which is a contract between the lender and you regarding your promise to repay the loan under the original terms in order to keep that property.

Schedule a Consultation With a New Jersey Bankruptcy Attorney

If you do not agree to repay a secured loan and do not sign a reaffirmation agreement, the lender can take some of the property, although this is not always the case. The court may schedule a reaffirmation hearing in certain situations, such as when a presumption has arisen regarding the agreement being an undue hardship or claims that a debtor was not represented by an attorney. Scheduling a consultation with a dedicated bankruptcy attorney can give you greater peace of mind.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly at 856-488-1200.

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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