As a bankruptcy attorney, I get asked many questions each and every day about debt and mortgages. Should I reaffirm my mortgage after I file for bankruptcy? The answer is always – NO. Now, this question has started coming in a different format? Clients who filed for bankruptcy protection years ago are asking: Why didn’t I sign a reaffirmation agreement? My mortgage company is telling me that you didn’t file the correct paperwork, and it goes on and on. This is where I usually have to take a few minutes to explain why I can give this advice without reservation.
Let’s start with what a reaffirmation agreement is and what it is not. My Colleague, Karen Oakes, answered this question in a prior post. Basically, the filing of a bankruptcy kills most contracts; including car purchases and home purchases. Once the contract is dead, the secured creditor may retrieve its collateral but cannot go after the debtor for any deficiency if the collateral was sold for less than what was owed. For example: let’s say you owed $10K on a car worth $5K at the time that you filed for bankruptcy protection. If you did not sign a reaffirmation agreement, you could surrender the car and pay nothing to the creditor. The creditor’s sole remedy was to retrieve their collateral. If you signed a reaffirmation agreement, you would breath life back into a dead contract, thereby giving your creditor additional rights under the contract. The most significant right or remedy available to the creditor was the ability to go after you for the additional money owed (in our example $5K).
Obviously, the same holds true for mortgage and promissory note on a home. If you fail to breathe life back into a dead mortgage and promissory note, the mortgage company is in a worse position than it would be had you signed a reaffirmation agreement. So, the mortgage companies want you to sign these agreements during your bankruptcy so that they maintain a superior advantage over you.
Recently, mortgage companies have been trying to coerce individuals into reaffirming debts on homes. The new trick is that they will no longer report to the credit reporting agencies that you are current on your monthly payments. The mortgage companies want homeowners to reaffirm mortgages that are sometimes 100K upside down.
Likewise, these same companies are telling individuals who filed bankruptcy in the past that they will not report all of the past monthly payments to the credit reporting agencies. So, several past clients have called with their concerns. Here is how you remedy the situation. First, you make all of your regular monthly mortgage payments post-bankruptcy. You keep track of when you sent the payment and when the money was withdrawn from your bank. This way, you have a current pay history. If you have filed bankruptcy in the past, you can always request a payment history from the lender.
Again, these agreements are in the best interest of the creditor, not the debtor. This is why it is so easy for me to advise clients not to sign them However, some clients are still concerned whether they will be able to keep their homes if they do not sign a reaffirmation agreement. In Florida the answer is yes. As long as you are current on your monthly payments, you can keep your home. I do not let my clients sign reaffirmation agreements on homes that are upside down.
If a client wants to sign a reaffirmation agreement on a home mortgage, they can do so, but I will not sign it.
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Last modified: March 28, 2013