If I File A Chapter 7 Bankruptcy In Florida – Should I Reaffirm My Mortgage?

28 May If I File A Chapter 7 Bankruptcy In Florida – Should I Reaffirm My Mortgage?

ReaffirmShould a Debtor in a Chapter 7 bankruptcy in Florida reaffirm their mortgage or second mortgage? Good Question. The Creditors think so. The case law is unclear (at least to me), and the debtors want a ride through (ability to pay as you go without reaffirming or redeeming). This is one issue where the Bankruptcy Courts nationwide have agreed to disagree.

There is clearly a split in the bankruptcy case law across the nation. Some Bankruptcy Courts allow the ride through which means that Chapter 7 bankruptcy debtors will be allowed to continue making regular payments. The case law in the Bankruptcy Courts in the Middle District of Florida is just the opposite. Here, we have an opinion that states that a debtor is required to reaffirm their mortgages but the overwhelming majority of Chapter 7 debtors do not reaffirm their mortgages, and they continue to make regular monthly payments.The Creditors are again rearing their ugly heads. Recently, I received a Motion to Compel Reaffirmation in one of my Chapter 7 bankruptcy cases. I knew the debtor was current on his monthly payments and planned on keeping the home. I wondered why the creditor would rock the boat when they were being paid. It didn’t make sense. After reading the creditors motion, I pulled the case law that they cited, and I got started thinking about Statements of Intention, Debtor’s Duties, and Reaffirmation Agreements.

There is no doubt that creditors love reaffirmation agreements, but how do they get there. In Chapter 7 bankruptcy, the debtor must file a Statement of Intention. Under Bankruptcy Code § 521(a)(2)(A), the debtor is required, “within thirty days after the date of thefiling of a petition … or on or before the date of the meeting of creditors, whichever isearlier,” to file a statement of intention declaring the debtor’s intent with respect to eachdebt secured by property of the estate. In our case, we filed a Statement of Intention demonstrating that the Debtor will reaffirm the debt. We clearly did not complete our intention within the time-frame contemplated by the bankruptcy code. By failing to fulfill the stated intention timely, the debtor will lose the protections of the automatic stay, but it doesn’t matter because the debtor is current on his monthly payments.

If the Debtor loses the protections of the automatic stay, the creditor has the ability to enforce any and all remedies under state law. Here, the debtor was current on all of his pre-petition payments and post-petition payments. Again, what does the creditor have to gain by forcing the issue? Can they run and try to foreclose on the debtor? I guess … but this creditor is the second lien holder. So, they will be foreclosing to get the first lien holder paid and only a partial payment for themselves. The house is underwater which means the debtor owes more on the home than what it is worth. In other words, if the home goes into foreclosure, the creditor pursuing the reaffirmation agreement will lose approximately $120,000.00.

A reaffirmation agreement will put the creditor back into a superior position to protect themselves after a debtor files a chapter 7 bankruptcy. This is the only reason that the creditor is pushing so hard. So, if a debtor doesn’t have to reaffirm a mortgage, but can live in the home and walk away at any time, the creditor will argue that the debtor can literally leave the place in disrepair with no consequences. At the same time, a debtor who signs a reaffirmation agreement will be stuck with the debt for the term of the contract. This could lead to significant financial problems after bankruptcy, especially in uncertain times.

The creditor pursuing the reaffirmation agreement may get what he wants if the Bankruptcy Judge agrees to follow another Middle District opinion on the issue. If that happens you may see this issue appealed because the bankruptcy code is unclear and the case law is a bit mucky, and oh yea, Bankruptcy Courts across the nation disagree as well.


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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.
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