The bankruptcy code offers powerful relief from overwhelming debt, but exceptions exist—some by choice. When creditors present reaffirmation agreements, they ask you to voluntarily surrender certain bankruptcy protections. Accepting this agreement can create risks to your finances and legal standing, so think carefully before you agree.
What is debt reaffirmation?
Reaffirming a debt means you sign a legal agreement to remain responsible for paying that debt even after bankruptcy. This agreement creates a new promise to pay a debt that could otherwise be eliminated through bankruptcy proceedings. The decision to reaffirm requires a thorough evaluation of your financial situation.
Major risks of debt reaffirmation
When you reaffirm a debt, you face several significant risks that could affect your fresh financial start:
- You remain legally obligated to pay the entire debt.
- You lose bankruptcy protection for this specific debt.
- Your credit score continues to suffer if you miss payments.
- You might face collection actions, including repossession or lawsuits.
- The debt can strain your post-bankruptcy budget.
- You cannot easily change your mind after court approval.
The Maryland court system requires all reaffirmation agreements to pass the “undue hardship” test. This test examines whether you can realistically afford the payments after basic living expenses. Many Maryland bankruptcy judges reject reaffirmation agreements that consume too much of a debtor’s income.
Protecting your financial future
Bankruptcy laws exist to give people a fresh start, but reaffirming debts can undermine this purpose. A qualified bankruptcy attorney can analyze your specific circumstances, explain Maryland exemptions and help you make decisions that truly benefit your financial recovery. It can be advantageous to seek professional legal guidance before signing any reaffirmation agreement.