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Your Right To Rescind or Cancel Reaffirmation Agreements In Chapter 7 Bankruptcy

Reaffirming a debt in a chapter 7 is a serious financial decision. The requires you to take certain steps to make sure the decision is in your best interest. Before deciding if you should sign a reaffirmation agreement, you need to know about your right to rescind, or cancel, the agreement.

You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60 day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To rescind (cancel) your reaffirmation agreement, you must notify the creditor that your reaffirmation agreement is rescinded (or canceled).

A reaffirmed debt remains your personal legal obligation. It is not discharged in your bankruptcy case. That means that if you default on your reaffirmed debt after your bankruptcy case is over, your creditor may be able to take your property or your wages. Otherwise, your obligations will be determined by the reaffirmation agreement which may have changed the terms of the original agreement. For example, if you are reaffirming an open end credit agreement, the creditor may be permitted by that agreement or applicable law to change the terms of the agreement in the future under certain conditions.

You are not required to reaffirm a debt by any law. It may not be a good idea to reaffirm a debt at all. Chapter 13 bankruptcy may be a better option if you are considering reaffirming on old cars or furniture. In many cases, the payment for those debts can be reduced in a chapter 13.

Your bankruptcy discharge does not eliminate any lien on your property. A “lien” is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal liability on the debt is discharged, because of the lien, your creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it.