Why You Shouldn’t Reaffirm a Mortgage in Bankruptcy

31 May Why You Shouldn’t Reaffirm a Mortgage in Bankruptcy

I recently got a phone call from a client. She got a letter from her mortgage company giving her the “opportunity” to reaffirm her mortgage. She wanted to know whether she should do this. I told her, “Absolutely not.” In the overwhelming majority of cases, it makes absolutely no sense to reaffirm a mortgage debt. Why? The Bankruptcy Code is written in such a way so as to make a mortgage reaffirmation bad news with a very small upside.

When the Bankruptcy Code was rewritten in 2005, additional provisions were inserted dealing with the reaffirmation of personal property, such as jewelry, cars, etc. A “reaffirmation”means that you sign a document, that must be approved by the Court, making you permanently liable for the loan, regardless of what happens, as if you had never filed for bankruptcy. You might say, “I want to keep my house, so I need to reaffirm the loan.” But this is not true. Unlike some personal property, you don’t need to reaffirm a mortgage to keep your house. So long as you keep your payments current, you keep the house, regardless of whether you reaffirm the mortgage or not.

What’s the benefit of not reaffirming? No matter what happens, so long as you have the mortgage you scheduled in your bankruptcy (even if it’s been sold but not if it’s been refinanced) the lender can’t go after you personally for any shortfall or deficiency. If you fall behind, it won’t show up on your credit record, and if there’s a foreclosure, the lender can’t go after you for any shortfall. This is true for the length of the mortgage. And if the payments are current, you keep the house.

What’s the down side of reaffirmation? If you fall behind on payments for any reason, the mortgage company can make a negative credit report, and if there’s a foreclosure, in those states that allow deficiency judgments, can go after you for any unpaid principal, interest, late fees, lawyer’s fees, costs, etc. as if you had never filed for bankruptcy.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.

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