The Bankruptcy Code requires 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 can seize wages and bank accounts if you, as the debtor, fail to pay.

Many bankruptcy courts don’t favor reaffirmation agreements because such agreements tend to defeat the very purpose of the Bankruptcy Code. The Bankruptcy Code is intended to give debtors a fresh start if they’ve fallen into financial difficulties. What frequently happens in these cases is that the debtor will do what the debtor is supposed to honorably do, which is to sign a reaffirmation agreement that’s been prepared by, for example, 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 which requires that the debtor and the debtor’s attorney appear in court. The bankruptcy judge likely will explain to the debtor that the reaffirmation agreement would create an undue hardship on the debtor if the debtor’s schedules show a monthly income which is less than their monthly expenses. In such a situation, 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.