What Happens if I Don't Reaffirm My Mortgage After Bankruptcy?

By Tom Streissguth

Filing for Chapter 7 bankruptcy is a means to discharge your debts and get a financial "fresh start." A home mortgage is a debt secured by property: the home in which you live. Filing for bankruptcy does not cancel your obligation to repay a loan if you remain in the home, nor does it end the bank's lien on the home, in case you should default on the loan. During a bankruptcy, you should consider the pros and cons of "reaffirming" your mortgage agreement.

Filing for Chapter 7 bankruptcy is a means to discharge your debts and get a financial "fresh start." A home mortgage is a debt secured by property: the home in which you live. Filing for bankruptcy does not cancel your obligation to repay a loan if you remain in the home, nor does it end the bank's lien on the home, in case you should default on the loan. During a bankruptcy, you should consider the pros and cons of "reaffirming" your mortgage agreement.

Chapter 7

In a Chapter 7 bankruptcy, the debtor is required to list all debts and assets, including property. The court issues a stay, banning any collection activity or lawsuits by your creditors, and then assigns a trustee to liquidate your assets in order to pay any secured debts. Unsecured debts are discharged at the end of the process, which results in a financial "clean slate." The laws of the states govern which property is exempt from seizure by the trustee; in all states a personal, primary residence is exempt and safe from foreclosure -- until the discharge.

Get a free, confidential bankruptcy evaluation. Learn More

Reaffirmation

During a bankruptcy, the debtor may enter into a reaffirmation agreement with any secured creditor. This is a pledge to continue regular payments after the bankruptcy, and is most often used for personal property, such as a car or boat, which the debtor wants to keep. The court must approve any reaffirmation agreements, which protect the creditors from a discharge of their loans. You may also sign a reaffirmation agreement with a mortgage lender, promising to keep up the payments and not to walk away from the loan.

Pros and Cons

A reaffirmation agreement with a mortgage lender means you agree to keep up payments, and that the court will not discharge the loan. Since the lender will still have a lien on the property, however, you risk foreclosure if you cease payments after the bankruptcy, with or without a reaffirmation agreement. The upside is that the lender continues reporting your loan as current to the credit bureaus. The risk is that you fall behind on the payments after the bankruptcy and lose the house anyway - and by terms of the reaffirmation agreement, remain liable for some or all of the outstanding balance.

Not Reaffirming

You may consider reaffirmation as a courtesy to the lender, in return for which the lender reports your good-faith effort to keep up on the loan. But mortgage lenders don't typically require reaffirmation agreements by debtors in bankruptcy, although they may ask for one in order to continue sending out statements and reporting payments. There's little risk that a mortgage lender will foreclose on a property if you continue payments, with or without a reaffirmation agreement. The bank or mortgage company wants to avoid foreclosure if at all possible, and also wants to avoid the legal fees associated with lawsuits against debtors.

Get a free, confidential bankruptcy evaluation. Learn More
Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?

References

Related articles

Can They Foreclose on Your Home If You Have Filed Chapter 7?

If you're in over your head with debt, filing under a Chapter 7 bankruptcy is one option to obtain financial relief. However, Chapter 7 may not prevent the foreclosure of your home. On the other hand, and depending on your circumstances and the laws in your state, you may be able to save your home even after declaring Chapter 7 bankruptcy.

Do You Have to Wait for Your House to Foreclose Before Filing Bankruptcy?

Bankruptcy allows debtors to get a fresh start when their bills become overwhelming, but debtors do not have to wait until the bank forecloses before filing for bankruptcy protection. You can file your bankruptcy case at any point in the foreclosure process, and your home mortgage and foreclosure can be handled like your other debts as part of the case.

Ways to Prevent the Loss of Your Home in Chapter 7 Bankruptcy

U.S. bankruptcy law serves two purposes. The first is to give people an opportunity for a new start by wiping away some or all of their debts. The second is to ensure creditors are treated fairly. If you are in jeopardy of losing your house, Chapter 7 bankruptcy offers you an opportunity to slow down the foreclosure process and catch up on your late mortgage payments.

Related articles

What Happens if a Bank Discharges a Home Loan During a Bankruptcy?

At the end of a bankruptcy case, you will receive a bankruptcy discharge that relieves you of all financial obligations ...

Bankruptcy Laws Regarding Mortgage

Bankruptcy allows debtors to get some relief from a debt load they cannot otherwise overcome, but it doesn't always ...

What Happens to a Home When One Files Bankruptcy?

When a homeowner files for bankruptcy, one of the primary considerations often on his mind is whether he can keep his ...

How Does Reaffirmation in Bankruptcy Work?

Bankruptcy is about fresh starts. Filing for Chapter 7 protection allows your bankruptcy trustee to liquidate property ...

Browse by category