When a borrower files for bankruptcy, they may have the option to reaffirm their debts in order to avoid having them discharged. A reaffirmation agreement is a legally binding contract that reinstates the borrower`s obligation to repay a debt even though they filed for bankruptcy.
However, reaffirmation agreements must be approved by the court before they become effective. In some cases, a court may deny a reaffirmation agreement if it is not in the best interests of the borrower.
So, what happens if a court denies a reaffirmation agreement?
First, it`s important to understand why a court may deny a reaffirmation agreement. Generally, a court will deny a reaffirmation agreement if it finds that the borrower cannot afford to repay the debt. This may be the case if the borrower`s income or expenses have changed since they originally took on the debt.
A court may also deny a reaffirmation agreement if it finds that the borrower was coerced or pressured into signing it. In these cases, the court may determine that the agreement is not voluntary and therefore not enforceable.
If a court denies a reaffirmation agreement, the borrower will no longer be obligated to repay the debt. However, the lender may still have the right to repossess any collateral that was used to secure the debt.
For example, if the borrower took out a car loan and the lender repossesses the car after the reaffirmation agreement is denied, the borrower will no longer be responsible for repaying the loan. However, they will lose the car and any payments they made towards the loan will be lost.
In some cases, a borrower may still be able to continue making payments on a debt even if a reaffirmation agreement is denied. This may be possible if the lender is willing to accept voluntary payments and the borrower is able to afford them.
In conclusion, a court denied reaffirmation agreement can significantly impact a borrower`s ability to repay their debts. It`s important for borrowers to carefully consider their options and to seek the advice of an attorney before entering into any reaffirmation agreements.