Should I Reaffirm My Mortgage After Bankruptcy?

10075935384_aa1e584514_zA common question from bankruptcy clients involves whether or not they should reaffirm their mortgage after filing for Chapter 7. The answer of course, depends upon what your ultimate goals are, and how badly you want to stay in your current home. Naturally, it also depends on your ability to afford to reaffirm that debt.

There are several ways of looking at this situation. Your mortgage company or lender is probably going to strongly encourage you to reaffirm the mortgage. After all, they don’t want to lose you as a paying client!

The fact that you’re filing for bankruptcy is a big indicator that your debts are too much for you to handle at this point, and reaffirming your current mortgage may hamper your ability to start fresh after your bankruptcy proceeding is over and your other debts have been discharged.

If you have a lot of debts other than a mortgage (ex. credit cards), and feel that getting rid of all other monthly obligations would put you in a place that would allow you to continue paying your mortgage, then you could certainly reaffirm it.

What happens if I don’t reaffirm my mortgage?

After your bankruptcy case has been completed, if you choose not to reaffirm the debt associated with your home, you will no longer be responsible for paying that mortgage bill every month. Sounds great, right?

The downside, of course, is that the bank may at any time decide to send your home into foreclosure, essentially evicting you from living there.

Sometimes, banks just don’t bother with a foreclosure, though, so it is possible that you’d be able to remain in your home (it will stay in your name unless/until a foreclosure occurs). The best thing for you to do at that point would be to reach out to your bank for a trial home loan modification.

Is a mortgage modification the same as reaffirming the loan?

No, it’s not the same. In the bankruptcy paperwork, you specifically stated that you WOULD NOT be paying your current mortgage any longer. If your lender then decides that it would still like to work with you (rather than going the long and arduous process of foreclosure), they would offer you a more affordable version of the mortgage you were paying on previously. This would be considered a new obligation and not a reaffirmation of the old debt.

Things to think about:

  1. Can you afford the payments as they are presented to you in the “new obligation”/loan modification?
  2. Do you really want to continue living in your home?
  3. Do you love the area in which your home is located?
  4. Are you satisfied with the lender’s new offer?

It is possible that, if you turn down an initial offer from your lender, that they may come back with a better offer. However, and this is a big HOWEVER – it is also entirely possible that they will immediately begin foreclosure proceedings, forcing you to find a new place to live, which can be difficult so soon after a bankruptcy (credit issues, skeptical lenders, high rates, etc).

Working with a NJ attorney who is experienced in bankruptcies and loan modifications is your best next step. If you’d like to schedule a free consultation, call Veitengruber Law at (732) 852-7295.

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