Bankruptcy: Implementation of Reform Act's Debt Reaffirmation Agreement Provisions

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (referred to hereafter as the Reform Act) included provisions to better inform individuals who file for personal bankruptcy about their options for reaffirming debt--whereby filers may voluntarily agree to pay certain creditors in an effort to retain assets, such as an automobile. Reaffirmation agreements between debtors and creditors are required, by law, to formally disclose to debtors the terms of the agreement, such as the amount of debt reaffirmed. Some requirements differ for credit unions, such as an exemption for reporting debtor financial information when the debtor's attorney signs the agreement. The Reform Act required GAO to study the bankruptcy reaffirmation process. This report discusses (1) the extent to which required Reform Act disclosures and other information have been incorporated into reaffirmation agreements, (2) the types of debts reaffirmed and the percent this debt comprised of debtors' overall debt burden, and (3) how reaffirmed and original interest rates compare. GAO reviewed a representative sample of bankruptcy files with agreements in five bankruptcy courts (in AL, CA, IL, TX, and WV) selected by, among other things, filing volume and geographic dispersion. Estimates from our sample cannot be generalized to all bankruptcy courts, but can be generalized to each of the selected bankruptcy courts.