Should I Reaffirm My Mortgage In Chapter 7 Bankruptcy?
November 4, 2022
Often times a person who files Chapter 7 has a home mortgage. Sometimes a first and second mortgage. The client is current on the monthly mortgage. They ask: “Should I reaffirm my mortgage”?
Lawyers who represent Chapter 7 individuals say “No”. This includes my firm, Robert J. Adams & Associates.
In the final analysis the choice is always yours. This is why every one of my Chapter 7 clients with a mortgage gets the following letter.
If you are a homeowner considering filing Chapter 7, I hope this helps you.
Dear Mr., Ms. or Mr. and Mrs._____________,
You are receiving this letter because you have mortgage on your home or other real estate. Further, if it is your intention to keep your home or other real estate and continue making your monthly mortgage payments.
A mortgage is a secured debt. Although you are filing bankruptcy and will receive a discharge of your personal liability the mortgage lien will remain your real estate until it is paid in full.
In bankruptcy, there is a choice 1) to sign a “reaffirmation agreement” where you would agree to be responsible for a debt despite having filed bankruptcy or 2) do not reaffirm the mortgage debt but continue to make your monthly mortgage payments; and, if not, escrowed pay your real estate taxes and maintain required insurance on the property.
SHOULD YOU REAFFIRM A MORTGAGE?
- Pros: The mortgagee will report to the credit bureaus that your mortgage loan is current. Also, you can communicate with your lender. They may continue to allow you to make your monthly payment at the bank branch instead of having to mail it. They will continue to report your timely payments on your credit report (as well as your non-timely payments). They will resume sending you your monthly billing statements.
- Cons: After the Chapter 7 discharge if you fall behind and a foreclosure is filed the mortgagee can obtain a deficiency judgment against you. Likewise, if you do not sign a reaffirmation agreement you can “walk away” from the property at any time and not be responsible for future payments or any payments.
If you do not reaffirm the mortgage debt you can still refinance your mortgage. If the lender does not cooperate Mortgage Brokers know how to get the payoff balances and any other required details.
In general, we do not recommend reaffirming mortgages, but the final decision is up to you. We will abide by your decision.
Mortgage companies generally do not send reaffirmation agreements to our office. If you wish to reaffirm your mortgage, you will have to contact them and request a reaffirmation agreement.
When you agree to reaffirm your mortgage debt we have to certify that the reaffirmation does not create an undue hardship for you. We can only certify a reaffirmation if the Income and Budget schedules filed in your case have sufficient income to pay the creditor after the discharge.
Also, if you enter into a reaffirmation agreement but then change your mind can you reject it? The answer is “yes” but only for a limited time, the latter of which is as follows:
- 60 days after the reaffirmation is filed with the court; or
- The date the Bankruptcy Court issues a discharge in your case
Robert J. Adams
Disclaimer: Blogs on legal matters are for information purposes only and is not to be construed as legal advice.
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