Should I Reaffirm My Mortgage in a Chapter 7 Bankruptcy?
When you file a Chapter 7 Bankruptcy, you must include all of your debts. Even if you have a mortgage and wish to keep the house, the debt must be listed in your Chapter 7 Bankruptcy Petition. Does this mean you will lose your house? NO! As long as you are current on your home and continue to make payments, you will not lose the property.
The more important question to ask is should I reaffirm the debt on my home. When you reaffirm the debt, you are telling the creditor and the Bankruptcy Court that you will continue to honor the mortgage and be legally liable for that debt. If you are unable to pay in the future, your home may be foreclosed. Additionally, if you live in a recourse state, the creditor may seek recovery against you if the home sells for less than is owed against it.
The decision to reaffirm is very subjective. Depending on your situation it may or may not be a good idea to reaffirm the debt. If you do reaffirm the debt, the mortgage company will continue to report your payments to the credit reporting bureau. If you do not reaffirm, it’s possible that the mortgage company will no longer report your payments (however, you can report these payments yourself).
If you do not reaffirm the mortgage you can remain in the home if you continue to make payments. If something comes up and you can no longer make the payments you can surrender the property and not have to worry about personal liability. If you are on a fixed income, have volatile income, or simply can’t afford the house you should not reaffirm. Remember, just because you don’t reaffirm, doesn’t mean you can stay in the home without paying. If you want to retain possession of the home but do not wish to sign the reaffirmation agreement you must remain current on the mortgage, insurance and real estate tax payments. If you make these payments, the mortgage company will not foreclose.