Mortgage Reaffirmation after Chapter 7 – What is it all about?

Mortgage Reaffirmation after Chapter 7 – What is it all about?

If you’d like to reaffirm your personal liability for a secured debt even after a discharge from Chapter 7 bankruptcy, a reaffirmation agreement is what you need to sign with the lender. Reaffirmation agreement is usually executed for secured debts such as mortgage, car loan, RV loan etc.

What is the reaffirmation agreement?

Reaffirmation of debt is a voluntary agreement on the part of the debtor to keep paying his mortgage or other secured debts even after receiving a discharge order in Chapter 7 bankruptcy.

The Reaffirmation agreement is not required by the Federal or State laws or the US Bankruptcy Code. By signing the agreement, the debtor becomes legally obligated to pay the portion of the debt for which he has received a discharge under Chapter 7 bankruptcy.  

When to file the agreement?

Reaffirmation agreement should be filed prior to the date of discharge of debts so that it can be enforced. The time period for filing the agreement is limited to 60 days after Section 341 Meeting of the debtor with his creditors in the presence of the court, the trustee and bankruptcy attorney.

The Reaffirmation Agreement must be approved by the bankruptcy court or it should be signed by a declaration of the debtor’s attorney. Otherwise, it will not be considered as valid. The agreement should include details of your income and expenses and a signed statement where you admit that you can afford the payments under Reaffirmation.

Can mortgage lender foreclose even if I reaffirm?

When you reaffirm mortgage, it implies that you’ve agreed to pay off mortgage dues even after you’ve received a discharge from bankruptcy. As long as you catch up the dues and do not fall behind, the lender will not initiate a foreclosure.

What if I fail to make payments under reaffirmation?

If you fail to pay off the mortgage after you’ve reaffirmed, the lender can obtain a judgment against you in order to place a lien on your assets or garnish your wages. Moreover, you won’t be able to discharge the debt you’ve reaffirmed. This is because you cannot file Chapter 7 bankruptcy in the next 8 years.

Can I cancel the agreement?

You can cancel the reaffirmation agreement within 60 days after it is filed at the bankruptcy court. It should be canceled prior to the discharge order being issued. You need to inform the mortgage lender about your decision to cancel the agreement. Once you withdraw from reaffirmation, the lender should return you any payments you’ve made so far under the agreement.

It’s good to reaffirm your mortgage as it has a positive impact on your credit score. This is because reaffirmation allows you to pay off any unpaid mortgage balance and fulfill your obligation. However, make sure you can afford the payments before you sign on a reaffirmation agreement or else chances are that you may lose your home in foreclosure.

Summary: If you’d like to pay off any dues on your mortgage even though you have no personal liability towards the debt after chapter 7 discharge, you can consider filing a reaffirmation agreement. By signing such an agreement, you reaffirm your legal obligation towards the debt payment.