Reaffirmation Agreements In Chapter 7
When you file your Chapter 7 Bankruptcy, you will have to declare on your Statement of Intention form, whether you plan to reaffirm certain debts. When you sign a Reaffirmation Agreement, you are simply recommitting to the debt associated with property. This property can be your vehicle or your home. Whether you should sign a Reaffirmation Agreement depends on the circumstances and the type of debt.
What Effect Does Bankruptcy Have On My Mortgage?
If you file Chapter 7 and receive a Discharge, you will effectively no longer be obligated to pay the debts which were discharged. This presents a dilemma when the debt is associated with property such as a home or vehicle. In those instances, the lender has the right to force you to either a) return the property associated with the debt, or b) sign a Reaffirmation agreement.
Because a mortgage debt is such a large debt, the Bankruptcy Courts have held that you actually have a third choice with regard to your home mortgage. That choice is that you can “Retain and Pay”. This means that you do not have to reaffirm your mortgage debt, and so long as you continue to make your mortgage payments, you can stay in the home.
What Are The Reasons To Not Sign A Reaffirmation Agreement?
First, if you or your spouse lose your job after bankruptcy, or if the economy and housing values decline, you’ll be protected. If you do not reaffirm, you can simply walk away from the home and you owe nothing to the lender. You simply turn over the keys. If you reaffirmed, then you would be responsible for the loan balance on the mortgage. If the lender sold the home in foreclosure and did not receive enough to pay off the mortgage, they could pursue you for the remainder. In the alternative, if the lender forgave the remaining debt, there is a chance you would receive a 1099 for forgiveness of debt. This would trigger a tax obligation for you.
Second, the terms of your mortgage will not change. The interest rate and underlying agreement with the bank will continue. Each time you make a payment, your balance will decrease. In other words, you will receive credit for all payments made.
What Are The Reasons To Sign A Reaffirmation Agreement?
Truthfully, the only real reason to reaffirm your mortgage debt is related to credit reporting. Most lenders will not report your mortgage payments to the credit bureaus unless you reaffirm the debt. One of the fastest ways to rebuild your credit is through making mortgage payments. There are alternatives, however. If you obtain a retail credit card or secured credit card, or if you’re making payments on vehicle loans, you will receive credit for those payments when the creditors report to the credit bureaus.
Speak With A Charlotte Bankruptcy Attorney Today
If you’re considering filing Chapter 7 Bankruptcy, call us at 704.749.7747 to speak with a Charlotte Bankruptcy attorney today. Or you can click HERE to request a consultation. Most consultations are done by phone and they are free—you deserve to understand your options. We hope you’ll choose to Recover With Us.