What Is a Reaffirmation Agreement in Bankruptcy?
When you file for Chapter 7 bankruptcy, most of your debts can be wiped out, giving you a fresh start. But certain debts—like car loans or mortgages—are tied to property you want to keep. That’s where a reaffirmation agreement comes in.
Defining a Reaffirmation Agreement
A reaffirmation agreement is a contract between you and a lender during bankruptcy. In simple terms, you agree to remain personally liable for a specific debt, even though bankruptcy would otherwise discharge it (it is almost like taking that loan out of the bankruptcy). This usually happens with secured debts such as:
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Car loans
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Mortgages
By signing a reaffirmation agreement, you promise to keep paying the loan as if bankruptcy never happened. In exchange, you get to keep the property tied to that debt (as long as you pay the loan as agreed).
Why Lenders Want Reaffirmation Agreements
Lenders like reaffirmation agreements because it gives them the right to pursue you personally if you default in the future. Without one, they could repossess the property if you stop paying, but they couldn’t sue you for any leftover balance (called a deficiency).
Pros of Reaffirming a Debt
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Keep property you need – Many people reaffirm car loans so they can continue driving to work.
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Credit reporting – Some lenders will report your on-time payments to the credit bureaus, which can help rebuild credit.
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Potential negotiation – Occasionally, lenders may lower the interest rate or adjust terms in exchange for reaffirming.
Cons and Risks of Reaffirmation
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Liability survives bankruptcy – If you default later, you remain fully responsible for the balance.
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Risk of repossession and lawsuits – If your car is repossessed, you could still owe thousands of dollars after bankruptcy.
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No true fresh start – Reaffirming a burdensome loan can tie you to debt you might otherwise walk away from.
Do You Have to Sign a Reaffirmation Agreement?
No. You are not required to reaffirm a debt. In fact, many bankruptcy attorneys discourage it unless it’s truly in your best interest. In Virginia and many other jurisdictions, judges are cautious about approving reaffirmation agreements because they can harm debtors more than they help.
For example, many car lenders will allow you to “retain and pay”—you keep the car and keep making payments, without a reaffirmation agreement. This option gives you flexibility: if you can’t afford the car later, you can return it without owing more money. Occasionally a few car companies will require a reaffirmation in order to keep the vehicle; requiring a reaffirmation is rare.
Do You Need a Reaffirmation Agreement for a Mortgage?
You do not need to reaffirm your mortgage to keep your house in Chapter 7 bankruptcy. As long as you are current on your payments (or catch up soon after filing) and maintain homeowners’ insurance, mortgage companies will accept your payments and let you stay in the home. Federal law is clear that a mortgage company cannot default a loan just due to a bankruptcy filing. Reaffirming a mortgage rarely benefits the homeowner — it just puts you back on the hook personally for the entire loan balance.
If you were to reaffirm and later face foreclosure, the lender could sue you for any deficiency balance. Without reaffirmation, the lender can still foreclose if you stop paying, but they cannot pursue you for any remaining balance after the sale. This is why many bankruptcy attorneys, and even some judges, recommend against reaffirming a mortgage unless there is a very compelling reason, such as the lender offering a meaningful interest rate reduction or loan modification.
You Can Still Get a New Loan After Bankruptcy
Another reason reaffirmation agreements are not always necessary is that you can often qualify for new financing after bankruptcy even without reaffirming the debt. Many people worry that if they don’t reaffirm their car loan or mortgage, they won’t be able to refinance or get another loan in the future. In reality, most lenders look at your payment history and current income, not just whether you signed a reaffirmation agreement.
For mortgages, you can often refinance or qualify for a new home loan two to four years after your bankruptcy discharge, as long as you’ve made consistent, on-time payments. For car loans, many people are approved for new financing within months of their bankruptcy. This means you can keep the benefits of your fresh start without unnecessarily tying yourself to old debt.
Court Review and Attorney Certification
If you do sign a reaffirmation agreement, your attorney must certify that it doesn’t create an undue hardship. Judges also review these agreements, especially if your budget is tight. Some judges reject reaffirmation agreements if they believe it isn’t in your best interest.
Example Scenario
Imagine you have a $20,000 car loan, but your car is only worth $12,000. If you reaffirm and later can’t make payments, the car could be repossessed and sold for less than you owe—leaving you responsible for thousands of dollars in deficiency balance. Without reaffirmation, bankruptcy would have discharged that debt.
Key Takeaways
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Reaffirmation agreements keep you personally liable for a debt after bankruptcy.
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They’re common with car loans, but not always necessary.
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Judges and attorneys carefully review them to protect you.
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In many cases, “retain and pay” may be a safer alternative.
✅ Thinking about bankruptcy? At Ashley F. Morgan Law, PC, we help clients in Virginia understand their options—including whether a reaffirmation agreement makes sense. Every case is different, and our goal is to protect your financial future.