It is a requirement of the Bankruptcy Code that debtors reaffirm loans secured by personal property such as cars, computers, boats, etc. Reaffirmation means that even though you receive a discharge in bankruptcy, creditors holding reaffirmed debts can still get judgments and seize wages and bank accounts if the debtor fails to pay.

Many bankruptcy courts don’t favor reaffirmation agreements because they tend to defeat the very purpose of the Bankruptcy Code which is to give debtors a fresh start if they’ve fallen into financial difficulties. So what frequently happens in these cases is the debtor will do what the debtor is supposed to do, which is sign a reaffirmation agreement that’s been prepared by the car lender. Then the debtor’s lawyer will refuse to sign this document because I think it’s going to create an undue hardship on the client. Nevertheless the lender will almost always file that reaffirmation agreement with the Bankruptcy Court. The Bankruptcy Court will hold a hearing and the debtor and the debtor’s attorney have to appear. The bankruptcy judge may likely explain to the debtor that if their schedules show that their monthly income is less than their monthly expenses that the reaffirmation agreement really is creating an undue hardship on the debtor and the Bankruptcy Court will refuse to approve the reaffirmation agreement.

This doesn’t create a problem for the debtor because the debtor has done everything that they were supposed to do under the Bankruptcy Code. The order that the Bankruptcy Court will enter will provide that as long as the debtor is making payments on the car, the secured creditor can’t seize or repossess that car.