If you are considering bankruptcy in South Dakota and want to retain your vehicle or another financed item, your lender may recommend a reaffirmation agreement. While the terms may seem straightforward, it is important to refrain from signing one until you have consulted with our knowledgeable Rapid City Bankruptcy Lawyers, who can help you weigh the pros and cons.

What is the Purpose of a Reaffirmation Agreement in South Dakota?

First and foremost, it is crucial to understand that a reaffirmation agreement is a legally enforceable contract that may be offered during a bankruptcy case (often Chapter 7).  With this agreement, you remain personally responsible for paying a particular debt, like a vehicle or mortgage, which would otherwise be discharged. In return, you can keep the collateral asset as long as you continue payment. Essentially, it establishes a new deal between a debtor and their lender.

A reaffirmation agreement provides several benefits, including keeping essential property, aiding in credit-building, and maintaining a relationship with lenders. Nevertheless, it is important to recognize the risks, as the creditor still has the authority to seize the asset if you are unable to make payments.

What Are the Downsides of Reaffirmation?

Reaffirming a debt in South Dakota will void the bankruptcy discharge for that specific obligation, putting it back on your shoulders. In the unfortunate event that you default, the lender is entitled to repossess the collateral asset, pursue a lawsuit for any deficiency balance, receive a judgment, and possibly garnish wages or levy bank accounts.

In addition, reaffirmation can place you in a lousy deal. This is especially true if the loan balance exceeds the collateral asset’s value or the interest rate is high. An experienced attorney at 605 Bankruptcy can help you determine whether reaffirming is the best course of action versus surrendering the collateral, given the unique circumstances of your situation. Reaffirmation also leaves no margin for basic living expenses or emergencies, which poses the risk of long-term financial hardship.

What Are the Alternatives to Reaffirmation?

Besides reaffirming debt, you can opt for one of these alternatives:

  • Surrender the Property: If reaffirming your debt is not feasible given your current financial standing, it may be best to simply forefit the collateral. Walking away from the debt will ensure that you are no longer responsible for the outstanding balance following the sale.
  • Redeem the Property for Its Current Value: In some cases, you may be able to redeem the property by paying its current fair market value in a lump sum, which would completely erase the remaining loan. This option is effective when the vehicle is worth way less than the debt but requires cash or special financing.
  • Stay Current Without Formal Reaffirmation: Consult with your attorney and lender regarding the possibility of retaining your collateral by continuing to make payments, even without a reaffirmation agreement. It is important to note that this is a riskier method, and its feasibility depends on the specific creditor.

To discuss your options, it is advisable to contact our legal team. At 605 Bankruptcy, we are prepared to help you determine whether a reaffirmation agreement is in your best interest.