11 May Is Reaffirmation of a Mortgage Required?
When you file for bankruptcy, you are generally given three choices with regard to a secured debt; that is, a debt that is attached to a lien on something you own. The Bankruptcy Code specifically deals with reaffirmations and when and how they must occur. That information appears elsewhere on this site and there is debate over whether there is a fourth option to keep the collateral and continue paying the debt without reaffirming. But, do you need to reaffirm a mortgage too?
When the Bankruptcy Code was changed in 2005, much emphasis was placed on reaffirming secured debt. The lenders proposed, and paid for, a change in the law to require a consumer to reaffirm a car loan or the lender would be given the right to ignore the bankruptcy and repossess the car. The same is true for loans on other kinds of personal property. When you do not reaffirm a loan secured by personal property, the automatic stay of the bankruptcy case is automatically terminated. It is up to the lender and state law what happens next.
But what about real property? What about your home? Do you need to reaffirm a mortgage to keep it and be allowed to keep paying the payments when you file for bankruptcy?
A Bankruptcy Court Judge in Connecticut was faced with that question recently. Are reaffirmations of mortgages required? She decided that there was nothing in the new law that required reaffirmations of mortgages on real estate, only loans secured by personal property. Interestingly, to reach that result, she relied on cases dealing with the fourth option for personal property and found that since those cases were not overruled by the new law, the previous allowance of the fourth option of keep and pay was valid and no reaffirmation of a mortgage was required. But as an aside, she also seemed to find that the new law does require a reaffirmation of personal property which would directly contradict her own decision. For a more technical discussion of the decision, check out thispost.