The period during and after bankruptcy can be a stressful and confusing one. This is especially true for homeowners who file for chapter 7 bankruptcy.
Will you be able to remain in your home? That question often leads to sleepless nights and difficult decisions. If you are well-informed about your options, though, it doesn’t have to lead to bad choices that could ruin your financial future.
If you are here, you are probably already aware that bankruptcy has an impact on your assets. This includes large and valuable assets like a home, vehicle, or other expensive items. You must document these assets as part of your bankruptcy to provide a complete picture of your financial situation to the bankruptcy court.
You may have heard from someone who went through bankruptcy before 2005 that assets like a home and a vehicle are exempt from being seized by the bankruptcy estate as long as you can continue making the appropriate payments. However, this is no longer the case. As of 2005, these assets are now subject to being seized by the bankruptcy estate to offset the cost of your debts in Chapter 7.
That means that if you file for chapter 7 bankruptcy, you may well end up losing your home if you are still paying for it. Since nobody likes the idea of losing their primary residence, some people may think it is a good idea to reaffirm their mortgage during or after their bankruptcy.
If you are asking yourself, “should I reaffirm my mortgage after chapter 7?”, the answer is probably no. Go ahead – ask your bankruptcy lawyer. They will likely give you that same answer.
Remember, the entire reason that most people choose a chapter 7 bankruptcy over another chapter – or another debt relief option – is because they want to discharge a large amount of debt. Discharging debt means walking away from that debt. You are no longer responsible for repaying it once it is discharged.
This is entirely counter to what a reaffirmation of your mortgage would mean. But to better understand why that is, it is a good idea to understand exactly what reaffirmation is.
When you reaffirm something, you restate your previous commitment to that thing. Given that definition, the term “mortgage reaffirmation” is simple: It is a restated commitment to paying your mortgage payments.
Again, this probably sounds less dangerous than it actually can be for consumers. You agreed to pay your mortgage previously – why not again? The problem is, you likely are not in the same financial situation that you were in when you initially took out that loan. That means you likely will not be able to make those payments.
Likewise, if you reaffirm the mortgage, you also reaffirm the payment of the “deficiency balance”. This means that any payments you missed prior to your bankruptcy filing, you will become liable for in total afterward. Some lenders may agree to allow you to break that total into payments alongside your actual mortgage payments, but they are not required to do this.
For all these reasons, reaffirming a mortgage is not usually the recommended path for a homeowner during or after bankruptcy.
While mortgage reaffirmation is generally not the best idea, there are definitely some situations in which it makes sense for a homeowner.
One example might be a homeowner who has actually been able to keep up with mortgage payments, but who is struggling under the weight of many other, large debts. In this case – since the secured debt of the home is not really the reason they needed to file for bankruptcy in the first place – reaffirming that mortgage might not be a bad course of action for the consumer.
The bankruptcy judge will be the one to whom you appeal for a reaffirmation. They will also be the one who determines whether you are able to reaffirm. While it may not seem fair for a judge to make this decision for you, it is important to remember that they often decline a reaffirmation out of concern for the filer – and do have your best interest in mind when they do so.
What happens if you go through the process of reaffirming your mortgage, only to decide that it isn’t the right choice for you after all? Can you rescind the decision?
Yes, you can. But only for a short time. You may change your mind about reaffirming your mortgage up to sixty days after you file for the reaffirmation or up to the date of the discharge of your bankruptcy, whichever comes later.
In any case, it is best to make this change as soon as possible once you come to a decision, rather than waiting and risking missing your opportunity to do so. Once you have successfully reaffirmed your mortgage, you are once again personally liable for the total expense of that loan. Do not make this decision lightly!
After all of this, you may still be wondering: should I reaffirm my mortgage after chapter 7? Is there an easier answer than sorting through all these circumstances and weighing all these options?
Unfortunately, no. No bankruptcy attorney who has any experience will offer you a one-size-fits-all solution to a situation like this because there simply isn’t one. Rather, they will advise you to speak to them at length about your unique situation, why you are considering reaffirming your mortgage, and discuss those details to determine what the best moves for you would be, going forward.
At the Van Horn Law Group, that is exactly what you can expect. Our experienced legal team knows how to guide you through even the most difficult decisions. Give us a call today to discuss your situation and let us find the path forward that will make sense for your finances – and your family’s future!
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