Should I Reaffirm My Mortgage In A Chapter 7?

Many Homeowners file a Chapter 7 Bankruptcy who are current on their  mortgage and want to keep their home. The question is “Do I reaffirm my  mortgage?” The answer, almost always, is a big fat NO.

REAFFIRMATION GENERALLY

In a Chapter 7 secured debts (like a car note* or mortgage) are generally treated one of three (3) ways:

  1. Reaffirm the debt. This means that you have the same obligation after the Chapter 7 is over as you had before;
  2. Redeem for value. This is generally not applicable on a house;
  3. Surrender  the asset. You give up the car or the house and owe nothing.But, there  is a fourth (4th) way when it comes to mortgages-do none of the above  and you continue to pay the mortgage.

NO LEGAL REQUIREMENT TO REAFFIRM

Banks  and mortgage companies often tell homeowners they have to reaffirm the  mortgage debt if they want to keep their home. That is not true. They  cannot foreclose on a mortgage that has made all the payments required  of them.

Banks will tell people they  cannot refinance unless there is a reaffirmation agreement. That is  simply not true. If one has a problem with the current lender there is  an easy solution. A homeowner can work through a mortgage broker who  will submit a refinancing package to lenders. If you otherwise qualify,  you’ll find a mortgage lender.

Even if  you are trying to get a loan modification, there is no requirement to  reaffirm on the mortgage to qualify. This is especially true with the  Making Home Affordable programs (HAMP and HARP). The rules were  clarified a few years ago that you do NOT need to reaffirm the mortgage  to get assistance on your mortgage.

THE GENERAL CONSENSUS OF CONSUMER BANKRUPTCY LAWYERS

Experienced  lawyers, who concentrate in Consumer Bankruptcy, seldom, if ever,  recommend or approve of reaffirming a mortgage debt. Essentially there  is really no upside in reaffirming a mortgage debt, but there is a huge  downside in reaffirming.

THE DOWNSIDE IN REAFFIRMING A MORTGAGE DEBT

A  mortgage on your home is a debt secured by your home itself. If you  reaffirm you are agreeing to be personally liable for the debt after the  conclusion of the Chapter 7 bankruptcy. This means if you get in  trouble and default after the bankruptcy not only can they foreclosure  but the mortgage company can get a deficiency judgment and sue you to  collect on it. For example, a judgment of foreclosure is $210,000 and  foreclosure auction only nets $150,000: you will owe $60,000!

THE BENEFIT OF NOT REAFFIRMING A MORTGAGE DEBT

If  you want to keep your house you just maintain the monthly mortgage  payments as well as real estate taxes and required homeowner insurance.

A  significant numbers of homes are actually “underwater” meaning the  value of the home is less than the mortgage balance. It is not unusual,  for instance, to go on the internet and find an estimated value of  $200,000 while the amount owed on the mortgage is $250,000. Still many  people say they will continue paying their mortgage because it’s their  home and they want to keep it.

As long  as you do not reaffirm the debt, you have the option of walking away if  things don’t work out, and you would not owe a dime. Also, you may be  successful in “short” selling your home without negative consequences.

Our law firm has helped thousands of good people like you to get back on their feet financially.

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