Mortgage Balance Not Reaffirmed?


Had a different question last week, from someone who did not reaffirm her mortgage in her Chapter 7 case, kept current on the  payments, but wanted to pay off the balance for less than what was owed on the mortgage balance.


Just to review, reaffirmation is the process for you to obligate yourself once again to pay a debt, after you file bankruptcy.  It is an agreement between you and the creditor, filed with the court, BEFORE you get your Chapter 7 discharge.

So, you cannot force the creditor to sign, and the creditor cannot force you to sign.

Even after you sign, you have 60 days to just change your mind and back out.  This is an absolute right; you do not need a reason.

As I keep saying, reaffirming on a mortgage is a mistake.

The benefit is all to the creditor, who can sue you if it later forecloses on the defaulted loan, and the Michigan foreclosure sale amount is LESS than that balance.

You can keep your Michigan house after Chapter 7 if you just keep making the payments, on the loan and the taxes and insurance.  Of course, if you cannot, and default, the bank can foreclose, whether you reaffirmed or not.

Back to the question:  potential client wants to take retirement funds and get the mortgage cleared for $30,000 less than what she owes.

She stayed current on the payments; of course, the house is underwater, so her thinking is that the mortgage company is better off taking her lump sum and writing off the rest, which has alrady been discharged in her bankruptcy.

True enough, but, this loan is not in default.  It is a performing loan on their books, not one fo the tens of thousands of problem loans it has.

So, she is thinking of walking away from this house, taking out the retirement money and bjust paying cash for a different house.

I counsel against taking out retirement money unless there is a very good reason, which I do not think this is.

What do you think?


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