In Chapter 7 Bankruptcy, Reaffirm My Mortgage?

After you file Chapter 7 bankruptcy, you may be asked to reaffirm your mortgage.

Asked by who?  Why, the mortgage company, of course.

Here in Michigan, most homes with mortgages are underwater, worth less than what is owed on them.

So, you file Chapter 7 bankruptcy, your house is worth $100,000, and you owe $#120,000 on it.

This is a time you can walk away from the house, you will be discharged in the Chapter 7 bankruptcy from having to pay anything on the mortgage note.  (Unless the mortgage company sues you in the bankruptcy court, by filing an adversary proceeding and proving you committed fraud in obtaining the mortgage)

But, like most of my clients, you want to keep your house.

Of course, you have to be able to make the mortgage payment after your Chapter 7 bankruptcy.

And keep paying the taxes and keep it insured, just like you did before you filed bankruptcy.

Do you have to reaffirm, to sign a binding reaffirmation agreement, that makes you personally liable on that mortgage note as if you had never filed bankruptcy?

No.

I have yet to see a mortgage company in Michigan foreclose on someone who was keeping the taxes and payments made, and had the home insured, just for not signing a reaffirmation.

It borders on malpractice for an attorney to sign off on a client reaffirming a debt that is more than the value of the home.

I look at upside, downside.

I see no downside to not reaffirming.

Now, some of the mortgage companies say they will not tell the credit reporting agencies that you are making the payments on time.

So?  You have the right to include accurate information in your credit report.

You can add that at least once a year, yourself, without them.

They are required to give you at least annual statements.

The downside?

You sign, something else goes wrong, and you cannot make the payments, they foreclose for the $100,000 the home is worth, and sue you for the $20,000 difference.

Unless they are giving you some fantastic modification, DON’T DO IT!

In Chapter 7 Bankruptcy, Reaffirm My Mortgage?

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11 Responses to In Chapter 7 Bankruptcy, Reaffirm My Mortgage?

  1. Debtors who hope to modify mortgages may want to consider reaffirmation of their mortgage debt. Debtors should be wary of signing a binding modification agreement with their mortgage lender based on the lender’s oral statements and the debtor’s hope that the mortgage can be modified. Debtors can withdraw reaffirmation commitments until the bankruptcy case is closed or for 60 days, but thereafter, the reaffirmed debt binds the debtor whether or not the mortgage lender agrees to an attractive loan modification.

  2. You must reaffirm a debt while you are in bankruptcy. Once you have received your discharge and the case has closed, you cannot reaffirm. It’s also possible to reopen your case to reaffirm your debt (this really depends on your jurisdiction and your judge). In general, it’s not advisable to reaffirm your debt on real property because you can “retain and pay” – meaning, as long as you are current, you can keep your property. Remember, by reaffirming your debt, you are UN-doing the very purpose of bankruptcy – discharge of your debt. It’s as though as to the mortgage, you never filed a bankruptcy. You have struggled to pay your mortgage and can keep paying it if you just get rid of your credit card and other unsecured debts. So you decide that you need to file a chapter 7 bankruptcy case. These are not your only options. In contrast to the situation regarding an auto loan, where you could actually have the car repossessed if you don’t reaffirm, you could keep paying your home mortgage loan without losing your house. So the answer is clear. Don’t reaffirm unless you are getting something back which you think is of value to you, like a loan modification or other good consideration.

  3. i file chapter 7 in feb 2011 due to unemployment, after i contact the bank to talk about loan mod. they ask for all the paper work and letter auth to talk to me.i fax it all in. my brother is also on the loan but he didnt file for chapter 7. i didnt reaffrirm my mortgage loan. i just got discharge june 11. my mortagage is year behind. can i still reaffirm loan and try to get loan mod approve..i call the bank and they say underwriter looking at loan mod. no word. also i went back to work.. we show enough income now. i just want to pay my mortgage again and keep the house.. they can add past dues on to back end of the loan, if they lower my payment.. can some please help? what options do I have?

  4. Well, it is one of the mysteries of my life that I get questions like this AFTER people pay another lawyer.
    Who should answer this question for you.
    But, reaffirmation must be done BEFORE the discharge.
    Which is fine; they can modify the loan bankruptcy or not, and no way should you have reaffirmed this mortgage.
    Home is worth less than you owe, I assume?

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