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Should I Reaffirm My Mortgage Debt After Bankruptcy?

Written by Camille Puschautz on August 8, 2014 in Real Estate  |   6 comments

If you’ve found yourself in financial difficulty, you may be considering bankruptcy, which allows you to settle with your creditors in court. In a bankruptcy, you may be able reorganize your debts to make your payments more manageable—or even eliminate your debts completely. While a…

should-i-reaffirm-my-mortgage-debt-after-bankruptcyIf you’ve found yourself in financial difficulty, you may be considering bankruptcy, which allows you to settle with your creditors in court. In a bankruptcy, you may be able reorganize your debts to make your payments more manageable—or even eliminate your debts completely.

While a bankruptcy can help you get rid of your debt in general, you may want to recommit to the terms of your mortgage if you can afford to pay it and you want to keep the home. The promise to repay a mortgage after bankruptcy is known as reaffirming your mortgage debt, and whether you want to take this step depends on your circumstances and the type of bankruptcy for which you have filed.

What does it mean to reaffirm your mortgage debt after bankruptcy?

A reaffirmation agreement is a legal contract that states your promise to repay all or a portion of a debt from which you might have otherwise been released in a bankruptcy case. Reaffirming your mortgage debt means recommitting to the terms of the loan and promising to pay it. However, if you default or fail to pay the mortgage, you could still be subject to foreclosure.

“Bankruptcy has given you the right to discharge a debt and no longer have to repay it,” says Sam Tamkin, a Chicago-based real estate attorney, “If you are reaffirming that debt, you are agreeing to repay it.”

People usually opt for bankruptcy because they cannot afford to meet their financial obligations. If that’s the case for you, reaffirming a mortgage debt might undo the positive aspects of the bankruptcy, Tamkin cautions.

Why reaffirm your mortgage debt?

If you are current on your loan payments and able to meet future payments, reaffirming informs the lender that you intend to pay the mortgage. This allows you to keep your home during bankruptcy as long as you abide by the terms of the reaffirmation agreement and make the payments.

Reaffirming your mortgage ensures communication between you, the bank, and the credit reporting agencies, says Jennifer Brown of Fifth Third Bank.

“When you reaffirm, it’s going to alert the credit bureaus that you’re going through a bankruptcy so it looks like you’re paying your mortgage and shows that you have a history of making payments,” Brown explains.

Some lenders require borrowers to reaffirm their mortgage in order to have future payments recorded on their credit report.

“In the lending world, we want to see it’s been reported to the credit bureaus,” Brown says.

Those who do not reaffirm their mortgage debt but who still continue to make payments may find that their payments do not show up on their credit report. “If you don’t notify the lenders that you want to reaffirm, [those lenders] won’t alert the credit bureaus that you’ve been making payments on time,” Brown says.

Reaffirmation may also give you an opportunity to negotiate new terms with your lender in order to reduce your payments, your interest rate, or the total amount you owe.

How do you know whether or not you should reaffirm?

Each situation differs based on your payment history and your ability to pay in the future. If you are able to keep your mortgage debt, reaffirming may help ensure that the mortgage lender will report your payment activity to the credit reporting bureaus.

(Read more: What to Know When Filing for Bankruptcy)

On the other hand, if financial difficulties prevent you from making this commitment and you want to be released from your mortgage in bankruptcy, you should not sign a reaffirmation agreement. Reaffirmation leaves you personally liable for the debt, and you can’t walk away from it after bankruptcy.

“If the lender is foreclosing on your property, there is no need to reaffirm because the lender is going to take the property,” Tamkin says. Additionally, if you are delinquent on your payments, your mortgage lender simply may not allow you to reaffirm your mortgage debt.

“[Borrowers] should work with their bankruptcy attorney and the lenders to see what their goals are and decide whether they need to, want to, or should reaffirm any debt,” Tamkin says.

Because bankruptcy remains on your credit report for 10 years after the filing date, it’s important to maintain other aspects of your credit. As you move on from the bankruptcy, consider taking steps to rebuild your credit file, such as applying for a secured credit card or a retail credit card with a low limit. By making on-time payments and responsibly using credit, you’ll be able to build a strong credit history and make positive changes to your financial life.

Camille Puschautz is a researcher, writer, and Web producer at Think Glink Media, with a background in print and digital media. Previously, Camille worked for Bloomberg News in New York and MediaTec Publishing in Chicago. She is a graduate of the University of Dallas and Northwestern University, where she received a master’s degree in journalism.

6 comments

  1. Ella N., Detroit says:

    Well it all sounds great, but what do you do when the mortgage company ignores you and refuses to work with you? They didn’t even offer a reaffirmation and the judge was pretty upset about it but no matter how many times we contacted the mortgage holder, no response. We let it go to bankruptcy, continued to pay the mortgage until my spouse died and then allowed it to go into foreclosure. I will pay a dear price for this now as I have nowhere to live, cannot get another mortgage and they continued up until the absolute end to refuse to talk to me or assist in any way shape or form. I wonder how they sleep at night.

  2. Nancy says:

    Camille,

    Thank you for writing this very informative article. I have a question related to what you wrote. I went through bankruptcy and didn’t reaffirm my mortgage debt with the lender so it was included in my Chapter 7 bankruptcy. I am still living in the house and now going through foreclosure now. I’m wondering if the lender can still go back and put the foreclosure on my credit report since it was already reported as discharged in bankruptcy?

  3. Nancy says:

    Ella, I understand there is a moderation process that people go through in foreclosure. What did the bank do in that process, if anything? I am sorry to hear about the loss of your husband an current living situation.

  4. You should know who I am says:

    I’d like to know how Equifax can show a judgment entered against me on an account that was included and discharged in Chapter 13 bankruptcy. I’ve disputed 3 times unsuccessfully even though I’ve provided many, many supportive documents showing the judgment amount and creditor that sought judgment were covered under the Chapter 13. Why in the world do they have a dispute process if you can’t win a dispute even with supportive evidence? The other 2 credit reporting agencies do not show the judgment as they obviously know it was included in the bankruptcy.

  5. Lynn says:

    I did not reaffirm my mortgage and have faithfully made payments on my house. If I send all information showing that I have paid / never late to the credit bureaus will the bureaus put it on my credit report?

  6. Peter C. says:

    By reaffirming the debt, most lenders will report it to credit reporting agencies. This can hurt your credit rating as much as help, for instance: You have a higher debt to income ratio, and any missed future payments are negatively reported. But the main reason not to reaffirm is to protect against future unexpected changes that cause your plans to change, and you decide you need to let the house go. Never reaffirm if the debt exceeds the value of the property.

    Reaffirmation agreements primarily benefit lenders, not consumers. Consumers who did not reaffirm can still contact their lender to obtain a payment loan history, which can be shown as evidence of good payments.

    Nancy: The short answer is Yes. A foreclosure is reported as a “public record”, not a debt.

    You should: The judgment is a public record. The bankruptcy discharged the debt, but did not remove the judgment from your county court record, and it is still a lawful judgment until it expires, or you go through the process of removing it.


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