Can a Reaffirmation Agreement be Rescinded After Discharge?

During a bankruptcy, you may be able to reaffirm some debts. This means keeping those debts and excluding them from the discharge of your total debt. Why would you want to do that? Because some of those debts are for very important items. 

An example of this type of debt may be auto loans since many people feel that they cannot survive without their vehicle. If you want to keep an asset that you have an outstanding loan against, you will need to declare that as part of the bankruptcy agreement. You will also have to sign an official document to legally reaffirm that debt. 

Reaffirmation literally means to commit to something once again. You are promising to continue paying off that debt rather than allowing it to be discharged as part of your bankruptcy because you do not want to lose that asset. However, things change- and when they do, it might be a good idea to change that agreement, too. 

Can a Reaffirmation Agreement Be Rescinded?

What happens when your financial or lifestyle situation changes during or after your bankruptcy and you no longer want to hang onto that asset? A couple of examples of why this may happen include: 

• You are no longer working, and you no longer need your vehicle.
• You move closer to your work, school, or other common destinations or public transit becomes available, and you decide not to keep your vehicle.
• You find a much cheaper – perhaps used – vehicle and opt out of continuing to pay for your newer vehicle.
• Your vehicle becomes more expensive than you can afford by requiring expensive repairs or maintenance.
• You have decided to use someone else’s vehicle in your family or household and let go of the one you owe money on.
• You receive tickets or are in an accident and your car insurance becomes exceedingly high.
• You realize you cannot afford your vehicle’s ongoing payments, after all.

Whatever your reason for changing your mind about the asset that you originally wanted to keep, doing so can be tricky. 

Changing – or, more likely, completely throwing out – your reaffirmation agreement is called rescinding. As you might have already guessed, making any major changes to your bankruptcy agreement is not easy, since the whole thing requires a lot of official, legally binding paperwork. With that in mind, there is a simple answer and a much more detailed caveat that you need to hear. 

The simple answer to whether your reaffirmation agreement can be rescinded is yes. The more complicated answer is that you have a timeframe during which your agreement can be altered or thrown out. Let’s examine that more closely. 

What is the Timeframe for Rescinding My Agreement?

If you ask someone who has gone through bankruptcy before, you may hear that a reaffirmation agreement can only be altered or dismissed during the bankruptcy process. Many people mistakenly believe that once a bankruptcy is discharged, you are out of options for changing this agreement. They are misinformed. 

The truth is that the rule for rescinding a reaffirmation is either the discharge of the bankruptcy or 60 days after the date of filing of that reaffirmation – whichever is later. This means that technically, if your discharge happens faster than that 60-day window, you can still rescind your reaffirmation agreement even after discharge. 

Realistically, your bankruptcy process is likely to include a “meeting of your creditors,” especially if you are filing a chapter 7 bankruptcy. Your reaffirmation of debt is typically filed during this meeting, so the 60-day window actually begins on that date – not the day that you file your bankruptcy. In most cases, this means that you will have about a month after the discharge of your bankruptcy to change your mind about retaining that asset – and that debt. 

That tight deadline makes it preferable for you to change your mind and keep it that way as soon as possible. When you do change your mind on something like reaffirming a debt, it is best to do it sooner rather than later, because that recission should happen on paper to ensure that it does not get lost in the shuffle somewhere. While this process is not complicated – it is just a notice given to your creditors that you have decided not to reaffirm the debt after all – it still may take a few days of processing to go through. Time is of the essence for recission!

A Few Fair Warnings

There are so many logical, practical reasons why a person may decide to give up a major asset like a vehicle. Regardless of why you decide to do it, there are a few things that you should keep in mind during the process. 

First, once you rescind that agreement, your asset is no longer yours. It will likely be taken as part of the bankruptcy agreement to offset your debts, and your creditors can seize it as soon as they want to. Sometimes, this might even mean that they will show up the same day to take it, which can leave you in a tough situation if you are not prepared. However, the creditor will typically contact you and make an appointment to pick up the vehicle. 

Just as bankruptcy is not a decision that you should take lightly, rescission of a reaffirmation agreement is not either. It is best to seek legal guidance throughout the process, from making the decision to moving forward after recission. If you still have questions or are not sure of what to do, contact the bankruptcy attorneys at the Van Horn Law Group. Our experienced team can help you navigate the details of both the reaffirmation agreement and other bankruptcy exceptions, as well as determining when it might be a good idea to change those terms of your agreement. 

Remember, there is a brief period for changing your mind about reaffirmation of a debt. To ensure that you do not miss your opportunity to make that change, contact a legal professional today!