Rescinding Reaffirmation Agreements in Bankruptcy

Although a Chapter 7 Bankruptcy will discharge secured debts such as a home mortgage or a car loan, many debtors are willing to continue making the payments so they can keep the property. In this situation the bankruptcy law allows the debtor and the creditor to enter a reaffirmation agreement, in which the debtor agrees to continue making the payments, and the creditor allows the borrower to retain the property.

At times though debtors, who have become attached to their house or their car, or even in some cases to a boat or a camper, will sign the reaffirmation agreement and later realize that they made a financial mistake.

Homeowners, may be upside down on their mortgage, but will agree to reaffirm, because they like where they are living, and they are still carrying the hope in their hearts that the real estate market will make a comeback, and the house will turn out to be a good investment.

While the debtors do not have an unlimited option to change their mind, the law does allow them a limited window of time to cancel the agreement and still receive a discharge on the debt. The borrower may rescind the reaffirmation agreement within the later of the bankruptcy discharge date or 60 days after the reaffirmation agreement is filed with the court.

To exercise this right the debtor merely has to give notice to the lender within the rescinding period.