Pros and Cons of Reaffirming Your Mortgage in Bankruptcy

A reaffirmation agreement is an agreement the debtor enters into with a creditor after filing for bankruptcy. A reaffirmation agreement is an optional agreement for both the debtor and creditor. The reaffirmation agreement is a new contract in which the debtor agrees to remain legally obligated for paying a debt in spite of filing for bankruptcy.

When you file for chapter 7 bankruptcy, and do not reaffirm your mortgage debt, you are no longer personally liable on that obligation. This means you are freed from worry in the future if you decide to walk away from your house.

If you have reaffirmed your mortgage debt, the debt will not be discharged, and the creditor will retain all their legal rights to collect as if the bankruptcy had never been filed. Once the reaffirmation agreement is finalized, and a bankruptcy discharge is granted, a creditor may continue to collect on the debt. So why in the world would you want to reaffirm your mortgage?

When you reaffirm your mortgage in bankruptcy, the lender will continue reporting to the credit reporting agencies, which will help boost and repair your credit score. On the other hand, if you do not reaffirm your mortgage, the bank may not report the credit reporting agencies your mortgage payments. Additionally, your mortgage lender will be more likely to work with you in the future in refinancing the mortgage. If you do not sign a reaffirmation agreement the bank may be unwilling to work with you on future loan modifications.

To reaffirm your mortgage in bankruptcy requires a thorough analysis and discussion. It is important you find an experienced bankruptcy attorney to help guide you through the process.

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