After you file Chapter 7 bankruptcy, you may be asked to reaffirm your mortgage.
Asked by who?Why, the mortgage company, of course.
Here in Michigan, most homes with mortgages are underwater, worth less than what is owed on them.
So, you file Chapter 7 bankruptcy, your house is worth $100,000, and you owe $120,000 on it.
This is a time you can walk away from the house, you will be discharged in the Chapter 7 bankruptcy from having to pay anything on the mortgage note.
(Unless the mortgage company sues you in the bankruptcy court, by filing an adversary proceeding and proving you committed fraud in obtaining the mortgage) But, like most of my clients, you want to keep your house.
Of course, you have to be able to make the mortgage payment after your Chapter 7 bankruptcy.
And keep paying the taxes and keep it insured, just like you did before you filed bankruptcy.
Do you have to reaffirm, to sign a binding reaffirmation agreement, that makes you personally liable on that mortgage note as if you had never filed bankruptcy? No.
I have yet to see a mortgage company in Michigan foreclose on someone who was keeping the taxes and payments made, and had the home insured, just for not signing a reaffirmation.
It borders on malpractice for an attorney to sign off on a client reaffirming a debt that is more than the value of the home.
I look at upside, downside.
I see no downside to not reaffirming.
Now, some of the mortgage companies say they will not tell the credit reporting agencies that you are making the payments on time.
So?You have the right to include accurate information in your credit report.
You can add that at least once a year, yourself, without them.
They are required to give you at least annual statements.
The downside? You sign, something else goes wrong, and you cannot make the payments, they foreclose for the $100,000 the home is worth, and sue you for the $20,000 difference.