Revoking a reaffirmation agreement in a bankruptcy is possible, but you must do so correctly. When filing for bankruptcy, debtors may have the option to reaffirm debts to retain property that they may otherwise surrender. However, after signing a reaffirmation agreement, a debtor may reconsider and wonder whether they can revoke it. Understanding your rights and the legal deadlines for rescinding such an agreement is crucial to protecting your financial future.
What is a Reaffirmation Agreement?
A reaffirmation agreement is a legal contract between a debtor and a creditor that allows the debtor to continue paying a specific debt despite filing for bankruptcy. This agreement excludes the reaffirmed debt from the bankruptcy discharge, meaning the debtor remains legally responsible for repaying it. Reaffirmation agreements are most common in Chapter 7 bankruptcy cases and are used to retain secured property, such as vehicles or real estate.
Not all debt is reaffirmable, though. In fact, most debt is not eligible for reaffirmation. In order for a debt to have the ability for reaffirmation, it must be considered a secured asset. This means the debt ensures you get to retain it. People will often conflate this to buying something with a credit card, but it’s not. The asset is secured only through that debt by an explicit contract, entrusting it to the individual agreeing to pay for it in increments. Without that specificity, the debt gets discharged in the bankruptcy like all the other unsecured debt.
By reaffirming a secured debt, the debtor agrees that the creditor can enforce the loan terms if they fail to make payments. Because of the long-term financial implications, debtors should carefully evaluate whether reaffirming a debt is in their best interest. In some cases, especially if you have a lower income salary, it might be best to surrender the car and the debt in the beginning.
How Can You Revoke a Reaffirmation Agreement?
Federal bankruptcy law provides two ways to rescind (cancel) a reaffirmation agreement after signing it. A debtor may revoke the agreement if they act within one of the following timeframes:
- Before the bankruptcy court enters the discharge order, or
- Within 60 days after the reaffirmation agreement is filed with the court, whichever comes later.
This means that if a debtor signs a reaffirmation agreement but later decides they no longer want to be legally bound to the debt, they have a limited window of time to withdraw from the agreement. Waiting until the time has already run out to change your mind is inadvisable. You can only file for bankruptcy every eight (8) years, so you need to make it count. Getting saddled with a repossession debt for that long could decimate your financial stability.
How to Revoke a Reaffirmation Agreement
To effectively revoke a reaffirmation agreement, the debtor must take the following steps:
- Provide Written Notice – The debtor must notify the creditor in writing that they are rescinding the reaffirmation agreement. This should include the debtor’s name, case number, and a clear statement revoking the agreement.
- File a Notice of Rescission – Filing a copy of the rescission notice with the bankruptcy court ensures a record of the revocation.
- Keep Documentation – The debtor should retain copies of all communications with the creditor and any court filings.
After revoking a reaffirmation agreement, the creditor cannot enforce the terms of the contract, and the debt will be listed in the bankruptcy discharge. Sometimes, the creditor might give you pushback when revoking the reaffirmation, but you are well within your rights as long as you do it in a timely manner. The law supersedes their desire to have you keep the debt.
What Happens if You Miss the Revocation Deadline?
If the debtor does not revoke the reaffirmation agreement within the legal timeframe, the agreement becomes binding. This means the debtor remains responsible for repaying the debt, even though they have filed for bankruptcy. If they default on payments, the creditor can take collection actions, including repossession or foreclosure.
Because of this, debtors should carefully consider the consequences and other options before signing a reaffirmation agreement and be mindful of the deadlines for revocation if they change their minds.
Tulsa Bankruptcy Attorneys
Debtors who sign a reaffirmation agreement in bankruptcy have the right to revoke it under certain circumstances. This legal option provides protection for those who may have second thoughts about keeping a debt. However, once the deadline passes, the agreement becomes permanent, and the debtor remains liable for the debt. If you are considering revoking a reaffirmation agreement, get a free consultation from a Tulsa County Lawyers Group bankruptcy attorney by calling 918.379.4864. Or you can ask an online bankruptcy question by following this link.
