When you file a Chapter 7 bankruptcy case, you will be required to complete and file a Statement of Intention as part of your bankruptcy filing. A Statement of Intention notifies your secured creditors what you intend to do regarding the debt you owe on those accounts. A secured creditor is a creditor who holds a lien on collateral to secure the debt you owe (i.e. car loans, mortgages, etc.). You have several options with regard to secured debts.
You can sign a reaffirmation agreement, redeem the property, or surrender the property in satisfaction of the debt. One issue that comes up often in a Chapter 7 case is whether a debtor must sign a reaffirmation agreement for their mortgage if the debtor intends to keep the home.
What is a Reaffirmation Agreement?
Reaffirmation agreements are used in Chapter 7 cases to “reaffirm” a debt that the person wishes to continue paying even though he or she filed bankruptcy. It is a legal document between you and the creditor that creates a contractual agreement (much like the contract or loan agreement you signed when you originally took out the loan) that specifics the balance owed on the account, the interest rate, the monthly payments, and other terms associated with the debt.
When you sign a reaffirmation agreement, you are stating that you will repay the debt even though your bankruptcy case would have discharged the debt had you not signed the reaffirmation agreement. In other words, it is as if you never filed bankruptcy with regard to the reaffirmed debt.
The downside of signing a reaffirmation agreement for a mortgage loan is that if you default on the mortgage in the future, you will be responsible for any deficiency remaining after the mortgage company forecloses and sells the home (you owe the balance due after the proceeds of the foreclosure sale is applied to the mortgage balance). Without a reaffirmation agreement, the mortgage company cannot pursue you for any balance remaining after the foreclosure.
Am I Required to Sign a Reaffirmation Agreement for a Mortgage?
NO, you are not required to sign a reaffirmation agreement for your mortgage. Mortgage companies cannot legally require you to sign a reaffirmation agreement to keep your home. However, companies do sometimes stop reporting your payments to the credit reporting agencies and will not allow you to refinance the mortgage with the company. These are tactics used to entice borrowers to sign reaffirmation agreements because the agreements benefit the mortgage company and not the borrower.
You do NOT need to sign a reaffirmation agreement to refinance your mortgage with another lender. You can seek the assistance of a reputable mortgage broker or loan officer to assist you in finding a lender to refinance the mortgage if you choose to do so at some later date.
If you are struggling to pay your mortgage payments, I encourage you to contact my office to schedule a free bankruptcy consultation. We will discuss your options for resolving your debt problems and find an affordable solution that is right for you.
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The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans, and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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