Bankruptcy, Mortgages, and Reaffirmation Agreements

If you’re a homeowner and you find yourself in a Chapter 7 bankruptcy situation, the idea of mortgage reaffirmation might arise. Your lender might send a reaffirmation agreement to your bankruptcy lawyer, but the question is: should you sign it?

Benefits of Reaffirming Your Mortgage Debt



A Reaffirmation Agreement is like a promise that people dealing with Chapter 7 bankruptcy can make. Some of your debts are wiped away when you go through Chapter 7 bankruptcy. But with this agreement, you can keep owing money on things like your car, boat, or valuable items.

When you decide to reaffirm a debt during bankruptcy, you’re giving up the safeguard that comes with the bankruptcy discharge. Instead, you agree to stay responsible for the debt personally, even after the bankruptcy is closed.

By reaffirming, you commit to making regular mortgage payments, which can contribute positively to your credit history. This sustained payment behavior demonstrates responsibility and can aid in improving your credit score over time.

Additionally, reaffirming the mortgage ensures you can continue living in your home without the risk of foreclosure as long as you stay current on payments.

Reaffirmation might not appear concerning for individuals who wish to hold onto their homes or other assets tied to debt. After all, they intend to keep making payments, so it might seem insignificant to be obligated to do so by law.

Mortgage Payments and Reaffirmation Agreements



When you file for Chapter 7 bankruptcy, the bankruptcy’s automatic stay (the bankruptcy protection) prevents your creditors from taking any action against you outside of bankruptcy, and if you made any repayment arrangements with your creditors, then those arrangements will be void and your debt reverts back to the contract.  . But if you sign a Reaffirmation Agreement, it’s like making those deals active again. Usually, you need to be up-to-date on your payments, although sometimes you can include a small amount of missed payments in this new deal.

To make it official, a Reaffirmation Agreement must be submitted within 60 days after the initial scheduled 341(a) Meeting of Creditors. But remember that this timeframe can be stretched if the Bankruptcy Court grants the creditor an extension or if there’s an extension to the date of discharge.

The Top Risk in Reaffirmation



Now, if you’re a homeowner and decide not to keep being responsible for your mortgage after bankruptcy, that’s okay. You won’t have to pay that debt anymore, but you might lose the property if you stop paying. The bank can foreclose on the property, but that’s their option.

But here’s where it gets tricky: if you decide to stick with the mortgage and reaffirm the debt, then you still have to make payments and if you default later you will still be personally responsible.

However, some lenders after bankruptcy will continue to accept your payments if you are current on the debt obligation even if you do not actually reaffirm the debt obligation.  This adds more risk for foreclosure even if you are current as the lender will have the right to foreclose.  .


So, the big thing to remember is that when you reaffirm a debt, you’re saying you’ll pay it no matter what, even after bankruptcy. And if you don’t, the bank can take your property and chase you for more money. It’s like an extra risk you take on if you decide to reaffirm your debts.

Understanding the Impact of Reaffirming a Debt

Imagine someone goes through Chapter 7 bankruptcy to deal with their debts. Some essential things happen if they reaffirm a debt, which means they agree to keep paying it even after bankruptcy.

First, the creditor will send the attorney the reaffirmation agreement to consider and review with the Debtor.  If the Debtor can show that they can afford the debt to be reaffirmed based upon their bankruptcy schedules, then the court will approve the reaffirmation.  If they cannot show feasibility to reaffirm the debt then the Debtor will have to convince the court that they need to reaffirm the debt and explain to the court how they will be able to afford the payment. 

The Reaffirmation Hearing

At the reaffirmation  hearing, the person who went through bankruptcy and their lawyer will explain to a judge in charge of their Chapter 7 case why  it’s a good idea for the person to stick with this reaffirmed debt. The judge wants to know whether the person can afford to make the payments every month, so the Debtor will not jeopardize their fresh start after the bankruptcy discharge is received.

It’s super important for the person to think hard about whether they can afford these payments. If they can’t and end up not making payments, the lender can take back whatever the debt is tied to, like a house or a car and then the lender will be able to collect any deficiency balance against the Debtor.

Don’t Forget Your Mortgage Lender

The mortgage lender can also sue the person for any unpaid money because the Reaffirmation Agreement cancels out the usual protection from foreclosure that comes with bankruptcy.

Remember that if the court has approved a Reaffirmation Agreement, you have 60 days to change your mind and cancel it for any reason.

Finding the Right Bankruptcy Attorney To Reaffirm Debt



Reaffirming a mortgage can be particularly risky when the house’s value is lower than the mortgage balance amount, this is known as being “underwater.” If the homeowner loses the house, they might be responsible for the remaining difference in debt.

Anyone going through the bankruptcy process which decides to reaffirm should seriously consider the higher chances of facing significant future financial responsibility and the added time and cost in the bankruptcy procedure.

Before signing this kind of agreement, it’s wise to talk to a lawyer and consider whether it’s the right choice. It might only sometimes be the best move, depending on their situation.

Only Reaffirm With a Lawyer (And a Good One!)

If you need clarification on bankruptcy or reaffirming your home loan, it’s best to consult experts. Consider reaching out to a real estate or bankruptcy attorney for guidance. Additionally, talk to your tax professional to understand the tax implications of your option. Getting advice from professionals can provide clarity and help you make informed decisions.

Tips for Finding an Excellent Bankruptcy Attorney

Selecting the right bankruptcy attorney to reaffirm a debt is crucial. Follow these steps:

  1. Research: Find attorneys in your area.
  2. Experience: Choose one experienced with reaffirmation agreements.
  3. Reviews: Read client reviews for insights.
  4. Consultations: Schedule meetings with potential attorneys.
  5. Questions: Ask about their approach and success rate.
  6. Fees: Understand their pricing structure.
  7. Communication: Ensure they’re transparent and responsive.
  8. Compatibility: Work with someone you feel comfortable with.
  9. References: Request references from past clients.
  10. Trust Instincts: Choose someone you trust and feel confident in.
  11. Engagement Agreement: Review and sign the agreement.

Choosing the right attorney can significantly impact your reaffirmation process and financial security.

Can I Sell My House if I Did Not Reaffirm?



You could sell your house even if you didn’t reaffirm the mortgage during bankruptcy. In this situation, you still maintain ownership of the property, and because you didn’t reaffirm the mortgage, you’re still not personally liable or responsible for the mortgage debt.

If you choose to sell the house for an amount lower than what you owe, commonly known as a “short sale,” you may be held accountable for any remaining balance on your mortgage, so it is very important to make sure you have the proper legal counsel before closing on this type of sale. However, it’s important to note that such a sale would need your mortgage lender’s approval.

This process enables you to sell the property without carrying the burden of the mortgage debt and potential shortfall, given that the lender agrees.