Bankruptcy

Should I Reaffirm My Mortgage After Chapter 7 Bankruptcy?

By Kurt O'Keefe, Attorney at Law

Your mortgage company will probably ask you to reaffirm your mortgage after you file Chapter 7 bankruptcy.

These days in our country, many homes with mortgages are underwater, worth less than what is owed on them.

If you file Chapter 7 bankruptcy, your home is worth $200,000, and you owe $#240,000 on it.

You can walk away from the house, you will most likely get a discharge in the Chapter 7 bankruptcy, and not have to pay anything on the note.  (Unless the mortgage companyfiles an adversary proceeding in bankruptcy court and proves you committed fraud in obtaining the mortgage)

Most of my clients want to keep their home.

Obviously, you must to be able to make the payment after the Chapter 7 bankruptcy.

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

Do you have to reaffirm, to sign a binding contract, that makes you personally liable on that mortgage note as if you had never filed bankruptcy, that wipes out the benefit of the discharge on that debt?

Hell no.

I have yet to see a mortgage company in Michigan foreclose on someone, after Chapter 7 bankruptcy , who was keeping the payments and taxes current, and had insurance, just for not signing a reaffirmation before the discharge.

I believe it is malpractice for an attorney to sign off on a client reaffirming a debt for an amount clearly more than the value of the home.

I look at the upside versus the downside.

I see no downside to not reaffirming.

So, some of the banks say they will not inform the credit reporting agencies that you are current on the payments.

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?  Big.

You reaffirm, something else goes wrong, and you cannot stay current, they foreclose for the $100,000 the house is worth, and chase you for the $40,000 difference.

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

Should I Reaffirm My Mortgage After Chapter 7 Bankruptcy?

Full post as published by Bankruptcy Law Network on June 29, 2010 (boomark / email).