Pros and Cons of Reaffirming Your Mortgage During Chapter 7 Bankruptcy

 Posted on March 08, 2022 in Bankruptcy Law

If you are a homeowner who has defaulted on your mortgage payments or are experiencing other issues that have affected your ability to repay your debts, you may be considering bankruptcy. Filing for bankruptcy will allow you to halt foreclosure proceedings as you determine your options. If you plan to pursue a Chapter 7 bankruptcy, this will allow you to discharge a number of different types of debts, eliminating the requirement to repay what you owe and ensuring that you will receive a fresh financial start. However, the discharge of your mortgage loan will allow your lender to proceed with a foreclosure and take possession of your home. To prevent this, you may choose not to include your mortgage in your bankruptcy, and if you continue making payments while also making up any past-due payments or related fees, you may be able to maintain ownership of your home. 

In these situations, mortgage lenders will often ask homeowners to reaffirm their loans and agree that they will continue to be liable for the debt that is owed. By understanding how reaffirmation agreements are used and how they may affect you in the future, you can determine whether signing this type of agreement will be a good idea.

Benefits of Reaffirmation

Reaffirmation agreements primarily benefit lenders, since they ensure that a debtor will be liable for the debts that are owed. While bankruptcy will discharge a debtor’s obligation to pay debts, it will not remove the lien on a home, and a lender will have the right to take possession of the property. If you agree to reinstate the debt, you can continue to own your home as long as you remain current on your mortgage payments. Since payments made toward a reaffirmed loan will be reported to credit agencies, this may help you rebuild your credit after bankruptcy.

Drawbacks of Reaffirmation

You are not required to reaffirm your debts during the bankruptcy process, and in some cases, doing so may not be in your best interest. Since a reaffirmation will make you liable for the full amount owed, if you encounter difficulties that affect your ability to make payments in the future, your lender may proceed with a foreclosure. If the sale of the home following foreclosure does not fully cover the balance of the mortgage, the lender may also take legal action to collect a deficiency judgment for the remaining balance.

If you do agree to reaffirm your mortgage, your bankruptcy lawyer will need to sign off on the reaffirmation agreement. However, when doing so, your attorney must certify that the agreement will not cause you to experience undue hardship. Some attorneys are hesitant to do so because they may not be sure that debtors will have the resources to make ongoing payments as detailed in the reaffirmation agreement. 

Contact Our New Braunfels Foreclosure Defense Attorney

If you are planning to file for Chapter 7 bankruptcy, your mortgage lender may have asked you to reaffirm your loan to ensure that you can keep your home. At the Law Offices of Chance M. McGhee, we can help you determine whether signing this type of agreement would be a good idea, and we can advise you on other options that may be available. We will work with you to make sure you will be able to maintain ownership of your home while receiving relief from your debts. To arrange a complimentary consultation and learn how we can assist with your financial issues, contact our Boerne Chapter 7 bankruptcy lawyer at 210-342-3400.

Sources:

https://www.investopedia.com/terms/r/reaffirmation.asp

https://www.law.cornell.edu/uscode/text/11/524#c