Should I Sign A Reaffirmation Agreement On My Mortgage After Filing For Chapter 7?
After filing a Chapter 7 bankruptcy, you or your attorney may receive what’s called a “reaffirmation agreement” from your mortgage lender, likely accompanied by a letter trying to convince you that you should sign it. What that letter is not going to tell you is the most important piece of information – why signing is NOT in your best interest. That is what I am going to explain to you here.
A reaffirmation agreement is basically a brand new legal contract that revives your personal liability on the mortgage note – a liability that will otherwise be wiped out when you receive your discharge in your bankruptcy case. What this means to you is that if sometime down the road, say, 2 or 5 or 10 years from now, you come upon hard times again and can no longer afford to make your mortgage payments, your lender would not only be able to foreclose and take your home, but the mortgage company can also file a lawsuit against you for the deficiency from the foreclosure sale (ie, the difference between what you owe on the mortgage loan and the amount the property sold for at the foreclosure sale). For example, if you owe $200,000 on your mortgage loan, and your home is worth only $150,000 at the time of the foreclosure sale, then if you sign a reaffirmation agreement now, you could legally owe your lender $50,000 even though you no longer own your home. That is a HUGE risk to take for very little reward.
Now, the reasons that your lender will give you to try to get you to sign the reaffirmation agreement will certainly sound enticing: start receiving monthly billing statements again, reestablish automatic debit payments, have your positive payment history reported to the credit reporting agencies, yada yada yada.
But you have to ask yourself whether those are nearly good enough reasons to put yourself back on the hook for a liability of tens or hundreds of thousands of dollars in the future. I say: not hardly. Just keep making your mortgage payments and comply with all the other terms in your mortgage loan documents (property taxes, insurance, etc), and if you have any problems with your lender, then come talk to us.
Now, if your lender is willing to re-negotiate the loan, lower the interest or the principal owed, or somehow entice you into an offer you cannot refuse, then we may be willing to talk about it.
This blog was written by Holly McFall, Esq. of The Dellutri Law Group, P.A. Ms. McFall practices in the areas of Foreclosure Defense and Bankruptcy.
