Changed Your Mind? How to Rescind a Reaffirmation Agreement
If you signed a reaffirmation agreement and are having second thoughts, you may still have time to cancel it. The Bankruptcy Code provides a built-in cooling-off period specifically because Congress recognized how significant -- and potentially harmful -- reaffirmation can be.
The Rescission Period Under Section 524(c)(4)
Section 524(c)(4) of the Bankruptcy Code gives you the right to rescind (cancel) a reaffirmation agreement at any time before the later of:
- 60 days after the agreement is filed with the court, or
- The date your discharge is entered
No reason is required. You do not need to explain why you changed your mind. You do not need court permission. The right to rescind is absolute during this window.
How to Rescind
The process is straightforward:
- Act before the deadline. Calculate your rescission deadline based on the two dates above. Do not wait until the last day -- mail and filing delays can cause problems.
- Notify the creditor in writing. Send a clear written statement that you are rescinding the reaffirmation agreement. Include your name, case number, the account number, and a statement such as: "I am exercising my right to rescind the reaffirmation agreement filed in my bankruptcy case pursuant to 11 U.S.C. Section 524(c)(4)."
- Send via certified mail, return receipt requested. You need proof of when the notice was sent and received. Keep copies of everything.
- Notify the court. While not always strictly required, it is good practice to file a notice of rescission with the bankruptcy court so the record is clear. Your attorney can help with this, or you can file a simple written notice yourself.
- Notify your attorney. If you have a bankruptcy attorney, let them know immediately. They may need to update filings or communicate with the creditor.
What Happens After Rescission
Once you rescind, the reaffirmation agreement is void. The legal effect is as if you never signed it:
- Your personal liability is discharged. The debt is treated like any other discharged debt. The creditor cannot sue you for it.
- The lien survives. If the debt was secured (car loan, mortgage), the creditor's lien on the property remains. They can still repossess or foreclose if you stop paying.
- The creditor may act on the collateral. After rescission, some auto lenders may demand the vehicle back or require you to choose another option (redemption or surrender). Others may continue accepting payments. This depends on the lender and your jurisdiction.
When the Rescission Window Has Closed
If the 60-day period has passed and your discharge has been entered, the rescission window is closed. The reaffirmation agreement is binding, and you are personally liable for the debt.
At that point, your options are limited:
- Continue making payments. The most straightforward path. Budget carefully and build an emergency fund.
- Negotiate with the creditor. You may be able to negotiate modified terms (lower interest rate, extended term, reduced balance), though the creditor is not obligated to agree.
- File Chapter 13 later. If enough time has passed (four years from a prior Chapter 7 filing under Section 1328(f)(1)), you may be able to file Chapter 13 to restructure the debt.
- Consult an attorney. In rare cases, a reaffirmation agreement may be voidable if it did not comply with Section 524(c) requirements (missing disclosures, no attorney certification, not filed before discharge). An attorney can evaluate whether the agreement was properly executed.
Why Congress Created the Rescission Right
The rescission period exists because Congress understood that debtors facing financial crisis may make decisions under pressure that they later regret. Creditors have strong incentives to push for reaffirmation. Debtors facing the prospect of losing a car or home may sign without fully considering the long-term consequences.
The cooling-off period is a safety valve. It gives you time to reflect, consult with an attorney, review your budget, and make a final decision without the pressure of an imminent deadline. If you realize after signing that the payments will be a stretch, that the property is not worth what you owe, or that you simply do not want to carry this debt into your fresh start -- you can walk it back.
Tips for Deciding Whether to Rescind
- Review your post-bankruptcy budget carefully. Can you truly afford the payments for the remaining term?
- Compare what you owe to the property's current value. If you are significantly underwater, rescission may be the better path.
- Talk to your bankruptcy attorney. If they were reluctant to sign the certification in the first place, their advice now may be even more pointed.
- Consider your alternatives. If you rescind a car loan reaffirmation, can you find affordable transportation? If you rescind a mortgage reaffirmation, will the servicer continue accepting payments?
- Do not let inertia decide. The rescission deadline will pass whether you act or not. Making a deliberate choice -- either to keep the agreement or to cancel it -- is better than letting the deadline expire by default.