Reaffirmation Agreement Presumption Undue Hardship

When filing for bankruptcy, one may wonder how they can keep their assets while still receiving debt relief. One option is to sign a reaffirmation agreement with creditors. However, the law has put in place a presumption of undue hardship for such agreements.

A reaffirmation agreement is a legal document that allows a debtor to keep a secured debt, such as a car loan or a mortgage, while discharging other unsecured debts in bankruptcy. It essentially re-establishes the debt and the debtor’s personal liability for it, meaning they will continue to be responsible for paying it back.

The Bankruptcy Code requires that reaffirmation agreements be voluntary, meaning that the debtor must sign the agreement with full knowledge and understanding of its terms. The debtor must also prove that it will not impose an undue hardship on them or their dependents.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) introduced a presumption of undue hardship for reaffirmation agreements. This means that if the debtor’s expenses exceed their income, the court will presume that signing a reaffirmation agreement for a debt will cause an undue hardship.

The purpose of the presumption is to protect debtors from signing agreements that they may not fully understand or that will ultimately harm their financial situation. It also encourages creditors to offer reasonable and affordable repayment plans to debtors.

However, the presumption of undue hardship only applies to certain debts, such as car loans and personal property loans. It does not apply to mortgages or other real property loans. Additionally, if the debtor can prove that signing the reaffirmation agreement will not cause an undue hardship, the court may still approve it.

In conclusion, reaffirmation agreements can be a beneficial option for debtors who wish to keep certain secured debts while still receiving debt relief through bankruptcy. However, the presumption of undue hardship ensures that debtors are not forced into signing agreements that will ultimately harm their financial situation. As a professional, it is important to keep in mind the keywords «reaffirmation agreement presumption undue hardship» when writing about this topic.