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.

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.


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.

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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.

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


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What Happens When a Bank Charges Off Your HELOC After a Chapter 7 Discharge?

If you file for a chapter 7 bankruptcy, you are asking a federal court to protect you from collection actions and lawsuits over debt. The result of a successful bankruptcy is the discharge (cancellation) of debts that can legally be discharged. If your debt includes a home equity line of credit, and the court discharges that HELOC, you may still have to deal with the lender's claim on your home.

Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?

Although you've filed for bankruptcy, it is still possible to keep your home despite having a second mortgage on the property. You can enter into a reaffirmation agreement with the lender. By doing so, you agree to remain liable for debts secured by the property. However, you have to stay current and continue making payments. If you don't, you won't be able to discharge this obligation in the future, and the lender can come after you for the balance of the debt. If you have the chance to reaffirm a second mortgage and refuse, you may lose your home.

Chapter 7 Relief of Stay

In a Chapter 7 bankruptcy, a debtor petitions the court for protection from lawsuits and collection efforts. As soon as the petition is filed, the court grants an automatic stay. This is a legal restraining order that goes out to all creditors whom the debtor has listed on the petition. The stay has the effect of immediately suspending collection actions, and preventing any new actions while the bankruptcy is in progress. Creditors may request relief from the stay, which the court will grant if it has grounds to do so.


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