What Is a Reaffirmation Agreement and How Do You Use One?

What Is a Reaffirmation Agreement?

A reaffirmation agreement is a special contract you may enter into during a Chapter 7 bankruptcy to keep certain secured property, most often a car. In the agreement, you agree to keep making payments and remain personally responsible for the debt, even after your other debts are wiped out in the bankruptcy.

Essentially, reaffirming a debt means you agree to stay personally responsible for paying it, even after your bankruptcy case ends. These agreements are completely voluntary.

🚗 In most Chapter 7 cases, reaffirmation applies to car loans. You can only reaffirm a car loan if you're current on your payments and the equity in the car is fully protected by an exemption. Equity is the car’s market value minus what you still owe. Exemptions are laws that let you protect a certain amount of your property during bankruptcy, and they vary by state.

✍️ By signing a reaffirmation agreement, you’re choosing not to have that specific loan erased in your bankruptcy. In return, you get to keep the car, as long as you stay current on payments.

✨ If you file bankruptcy using Upsolve’s free filing tool, it will walk you through the process of preparing the proper forms for this process.

Do You Have To Sign a Reaffirmation Agreement To Keep Your Car?

Not always. Some lenders require a reaffirmation agreement if you want to keep the vehicle. Others may let you keep the car as long as you stay up to date on payments, even without signing anything new.

Whether or not you sign a reaffirmation agreement, if you want to keep the vehicle, you’ll usually need to continue making payments on time.

Steps To Reaffirm a Car Loan

There are five simple steps to reaffirm a car loan:

1. File Statement of Intention (with bankruptcy case) and stay current on payments

2. Wait for lender to send agreement

3. Complete & return agreement + Form 427

4. Attend hearing (if pro se)

5. Receive approval or denial of agreement

Keep reading for more details on each of these steps.

How Reaffirmation Agreements Work

If you want to reaffirm a debt, you’ll need to tell the bankruptcy court and your lender. You do this by filling out the Statement of Intention form. This is part of the paperwork you file when you start your case. 

You’ll also need to send a copy to your lender. After that, the lender usually prepares the reaffirmation agreement and sends it to you or your attorney if you have one.

Once you get the agreement, you'll review and sign it. You’ll also need to fill out financial information showing that you can afford the payments. Then you'll send it back to the lender. 

Here are some other important things to know:

• 📅 You must file the signed agreement with the court within 60 days of your 341 meeting. This is the meeting of creditors, which usually happens about a month after you file.

• 📃 You must attach a cover sheet, known as Official Form 427, to the reaffirmation agreement. It helps the court understand your financial situation. 

• ⚠️ If your expenses are higher than your income, the form will flag a presumption of undue hardship. This means the court may have concerns about whether you can really afford the payments. You’ll need to explain how you plan to make the payments despite the budget shortfall.

What Can Happen at a Reaffirmation Hearing?

If you're filing without a lawyer, the judge will hold a hearing to make sure reaffirming the debt is truly in your best interest. 

The judge will ask questions to make sure the agreement makes sense for you financially. 

They’ll consider things like:

• If you're current on payments

• How much the car is worth relative to what you owe

• Your understanding of what you're agreeing to 

While the judge can approve or deny the agreement, it’s not always a simple yes or no.

Sometimes, the judge may:

• Approve the agreement with caution, after confirming you understand the risks

• Suggest changes, like adjusting your budget or reconsidering your options

The judge’s main concern is whether reaffirming the debt will create financial hardship. They want to be sure you're not taking on a loan you can’t realistically afford — especially after getting a fresh start through bankruptcy.

Even if the judge denies the agreement, that doesn't automatically mean you'll lose the car. Some lenders still allow you to keep making payments without reaffirming.

What Happens if the Judge Denies the Reaffirmation Agreement?

If the judge denies your reaffirmation agreement, you’re no longer personally liable for the debt — the loan is discharged in your bankruptcy. But what happens to your car depends on your lender’s policies.

In practice, many lenders will still let you keep the car if:

• You're current on payments

• You keep the vehicle insured

• You haven’t otherwise defaulted on your loan terms

This is known as a ride-through, and while not officially recognized everywhere, it’s fairly common. Lenders may prefer to keep getting paid rather than go through the hassle and cost of repossession — especially if the car is worth less than the loan balance.

That said, they're not required to let you keep it. Some lenders have strict policies and may repossess the vehicle even if you’re current, especially if they view reaffirmation as a condition for keeping the car and/or state law allows them to repossess after discharge due to lack of personal liability.

💡 Bottom line: If your reaffirmation agreement is denied, ask your lender directly what their policy is. Some will let you ride through, others won’t. Knowing this up-front can help you plan your next steps — whether that’s continuing to pay, preparing to surrender the car, or considering alternatives like redemption.

What Are the Pros and Cons of Signing a Reaffirmation Agreement?

Many people reaffirm because they need reliable transportation and are confident they can afford the loan. But if there’s doubt about the car’s condition or your ability to make the payments, you may want to explore other options, like surrendering the car and replacing it with something more affordable.

Reaffirming a car loan can help you keep your vehicle after bankruptcy, but it’s not without risks. Here's a breakdown of what to consider when deciding whether reaffirmation makes sense for you.

Pros of a Reaffirmation Agreement

The biggest benefit of reaffirming your car loan is that you get to keep your car. This is especially true if your lender requires a reaffirmation agreement in order for you to keep it. 

Here are some other common benefits:

• ✅ Sometimes lenders are open to adjusting the loan terms. You may be able to negotiate a lower interest rate or smaller monthly payment. Most reaffirmation agreements stick to the original loan terms, but it never hurts to ask.

• ✅ Reaffirming also keeps your legal rights under the original loan. This could include things like grace periods, notices before repossession, or the ability to catch up on late payments (sometimes called a right to reinstate).

• ✅ If your car has equity — meaning it’s worth more than you owe — reaffirming can also feel like a safer option. If you fall behind later, the value of the car may be enough to cover the loan balance if the lender repossesses and sells it.

Cons of a Reaffirmation Agreement

The biggest downside is that reaffirmation takes away one of the key benefits of Chapter 7: having your personal responsibility for the debt erased. Once you reaffirm, you’re legally on the hook for the loan again.

That means if you fall behind later, your car can still be repossessed. Worse, you can still be sued for any deficiency balance, which is the amount you still owe after the car is sold. If the court awards the lender a judgment, they could try to garnish your wages or bank account.

Also, after you get a Chapter 7 discharge, you can’t file another Chapter 7 case for eight years. If you reaffirm and end up with unmanageable car debt down the road, you may have fewer legal options to deal with it.

How Reaffirmation Affects Your Credit

One reason some people choose to reaffirm a debt is to keep the account active on their credit report. If you reaffirm a loan — especially a car loan — your lender may continue reporting your payments to the credit bureaus. This can help you rebuild your credit after bankruptcy, as long as you stay current.

But reaffirmation isn’t the only way to rebuild credit, and not all lenders report reaffirmed debts. In fact, some lenders stop reporting altogether after bankruptcy, even if you're still making payments. 

💡 If building credit is your main reason for reaffirming, it’s worth asking your lender directly whether they will report your payments after reaffirmation.

Also, keep in mind that if you reaffirm and later fall behind, late payments and default will hurt your credit score again. Plus, you’ll still be legally responsible for the debt.

Can You Cancel a Reaffirmation Agreement?

If you changed your mind about reaffirming a debt, you can cancel (or “rescind”) a reaffirmation agreement — even if the judge already approved it — but there’s a very limited window to do so.

🗓️ You must cancel before whichever of these two dates comes last:

• 60 days after the reaffirmation agreement was filed with the court, or

• The date your bankruptcy discharge is issued

For example, if your discharge happens 45 days after the reaffirmation was filed, you have until day 60 to cancel. If your discharge happens 75 days later, then you have until that 75th day.

Steps To Cancel a Reaffirmation Agreement

Here are the basic steps to canceling a reaffirmation agreement. You can find more detailed information in this comprehensive guide from Public Counsel.

1. Write and send a cancellation letter to the creditor (or their attorney). Be clear that you’re canceling the reaffirmation agreement, and send the letter by certified mail with return receipt so you have proof they received it.

2. Notify the bankruptcy court by filing a Notice of Rescission of Reaffirmation Agreement. Include a copy of your cancellation letter, and attach proof that the creditor got it — like the certified mail receipt and the green postcard they sign and return. File all of this at the same court where you filed your bankruptcy case.

3. Keep a stamped copy of what you filed for your records. This is your official proof that you canceled the agreement on time.

⚠️ If your reaffirmation was for a car loan, canceling might lead the lender to repossess your car, even if you’re current on payments.

Alternatives to Reaffirmation

Reaffirmation isn’t your only option if you want to deal with a car loan during Chapter 7 bankruptcy. Depending on your situation and your lender’s policies, you may be able to take other paths, including:

• A ride-through

• Redeeming the car loan (redemption)

• Surrendering the car (voluntary surrender)

Ride-Through

Some lenders allow what's known as a ride-through.

💡 This means you keep making your regular car payments without signing a reaffirmation agreement. As long as you stay current and keep the car insured, the lender lets you keep the vehicle, even though the debt itself is discharged in your bankruptcy. 

Not all lenders allow this, and policies can vary depending on where you live, so it’s something you may want to ask about directly.

Redemption

Redemption means buying your car outright for its current market value — not what you owe on the loan. You pay the lender a lump sum equal to what the car is worth today. If your car is worth much less than your loan balance, this option can help you save money in the long run.

People who explore this option tend to owe much more money on their car loan than their car is currently worth.

That said, most people filing Chapter 7 don’t have the cash on hand to make a large lump-sum payment. Still, some people look into help from friends or family or explore specialized lenders like 722redemption.com, which offer loans specifically for redemption in bankruptcy.

Surrender

If your car loan is unaffordable, or if the car isn't reliable, surrendering the vehicle may be the best option. When you surrender the car, the lender takes it back, and your obligation to pay the loan is wiped out in the bankruptcy. That includes any deficiency balance (the amount you’d still owe after the lender sells the car).

While giving up a car can feel like a step backward, it may open the door to a more affordable and manageable financial future. Many people who surrender a vehicle during bankruptcy later purchase a less expensive car, often with better loan terms, since their debt has been cleared.

Can You Reaffirm a Mortgage in Chapter 7?

You can technically reaffirm a mortgage during Chapter 7 bankruptcy, but it’s rarely required and often not recommended.

🏠 Reaffirming a mortgage keeps you personally liable for the loan, even after your bankruptcy discharge. That means if you fall behind later, the lender could sue you for the full balance or a deficiency after foreclosure. Because of this risk, many bankruptcy judges won’t approve reaffirmation agreements on mortgages, especially if you’re filing without a lawyer.

Most people keep their homes after bankruptcy without reaffirming the mortgage, as long as they:

• Stay current on payments

• Keep the home properly insured

• Have enough exemption to protect the home equity

Some mortgage lenders may push for reaffirmation by saying it’s the only way to report payments to credit bureaus or offer refinancing later. While that can be frustrating, reaffirmation isn’t legally required, and in many states, courts won’t approve it at all.