What is Keep and Pay?
685 reads · Last updated: December 5, 2024
Keep and pay refers to a type of bankruptcy exemption. It allows an individual to retain an asset, such as a house or car, that would've otherwise been liquidated to repay their debt. Keep-and-pay agreements require the borrower to make payments on the retained asset to their creditor.
Definition
A reaffirmation agreement is a type of bankruptcy exemption that allows individuals to retain assets that would otherwise be liquidated to repay debts, such as a house or car. The agreement requires the borrower to pay the creditor for the retained asset.
Origin
The concept of reaffirmation agreements originated in U.S. bankruptcy law, designed to provide debtors a way to retain essential assets during bankruptcy proceedings. As bankruptcy laws evolved, this concept was incorporated into the legal framework to help debtors better manage their financial difficulties.
Categories and Features
Reaffirmation agreements are mainly divided into two categories: voluntary and mandatory. Voluntary reaffirmation occurs when the debtor chooses to retain the asset and reaches an agreement with the creditor, while mandatory reaffirmation is conducted under a court order. Features include the debtor's obligation to continue paying for the asset and typically require an agreement with the creditor to determine payment terms.
Case Studies
Case Study 1: During the 2008 financial crisis, many American homeowners retained their homes through reaffirmation agreements. These homeowners reached agreements with banks to continue paying their mortgages to avoid foreclosure. Case Study 2: After a car company went bankrupt, its employees retained company-provided cars through reaffirmation agreements, continuing to pay car loans to maintain their transportation.
Common Issues
Common issues include whether the debtor can continue paying for the retained asset. If unable to pay, the asset may be repossessed. Additionally, debtors might misunderstand the terms of the reaffirmation agreement, leading to its failure.
