A reaffirmation means you re-enter into the terms of a loan (usually for a home mortgage or a vehicle loan) and agree to continue to pay on the obligation. A reaffirmation agreement will state the balance still owing, the interest rate, the monthly payment and the amount of payments left to be made. The creditor, the debtor, and the debtor all sign the agreement and then it is filed with the court. The debtor then continues to make the payments on the loan and keeps the collateral.

A debtor does have to show he or she has the ability to make the payments going forward by filling in the areas of the reaffirmation agreement having to do with income and expenses. If you cannot show you have enough room in your budget to afford the payment, the judge will see it has a hardship for you and will not approve the reaffirmation agreement.

Once the reaffirmation agreement is signed and filed with the court, it becomes a binding agreement. If in the future you default on the obligation, the creditor will then be able to proceed with foreclosure or repossession to take back the collateral. If there is any deficiency balance after they sell the collateral, they will be able to pursue you for that too.