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Factors to Consider Before Signing a Reaffirmation Agreement

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Julie O'Bryan  |  11-13-17 | 3:23pm

Whether or not to reaffirm on a debt can be a difficult decision, with several factors to consider. A reaffirmation agreement is re-obligating yourself to the debt you owe and is not always possible for all financial situations. However, if you are eligible to sign, it can be a great option for you to keep your home or car. Here are some things to consider when deciding whether or not to sign a reaffirmation agreement.

▪   You must be current on payments to be eligible to sign a reaffirmation agreement. A creditor will not allow one to be filed without being up to date on your balance. However, many will work with you if you become current on payments.

▪   You must have extra expenses in order to sign a reaffirmation agreement. If you are negative when it comes to your income and expenses, you are not eligible to sign a reaffirmation agreement. You must be able to show the court that you will be able to stay current on your payments after signing.

▪   Signing a reaffirmation agreement is not the only way to keep your home or car. As long as you stay current on your monthly payments, the creditor will have to reason to take the property from you.

▪   Since the agreement is a legal obligation to the debt, if you sign the reaffirmation agreement and fall behind on your payments, the creditor can sue you for the deficiency balance. That balance is the amount they receive for the car or other property minus what you owe to the creditor, which can be several thousand dollars. If you think there is a chance of you falling behind, it may be better to keep making payments as long as you can, without signing the reaffirmation agreement.

▪   With so many stipulations to signing a reaffirmation agreement, is may seem like reaffirming may not be the best decision. However, the biggest reason to reaffirm a debt, if you are able, is to boost your credit. Once the agreement is filed, every payment subsequently made will positively affect your credit score. Otherwise, if you keep making your home or car payment without signing a reaffirmation agreement, it will have no effect on your credit score, even if you pay on time and in full. The creditor will not report any payments to the credit bureaus.

▪   If you think you may need to refinance your home or car later on, it is better to sign a reaffirmation agreement, if possible. Not signing an agreement can make it more difficult to refinance, since you will not have built up that relationship with your mortgage company, etc. 

Reaffirmation agreements can be great and are highly suggested if you are able to sign one. However, keep in mind the precious factors to consider and your financial situation. Remember, signing a reaffirmation agreement is not the only way to keep your home or vehicle. Discuss any concerns you have with your attorney. As long as you are open and honest with your attorney, they will lead you in the right direction and help you make the best decision for your situation.


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