With homeowner debt becoming a leading cause of bankruptcy, it is important to understand the relationship between mortgages and bankruptcy. How will filing for bankruptcy affect your mortgage? Can you protect yourself against foreclosure in the case of a bankruptcy filing? Will reaffirmation help or hurt you during a filing? These are all important questions and this post aims to answer them.
While the chapter 7 filing removes a debtor’s obligation to make mortgage payments, failure to pay the mortgage will enable the creditor to potentially foreclose on your home. As such, it is important to maintain regular payments of the mortgage. If regular payments are difficult to maintain on a constant basis, it may be necessary to consider the reaffirmation process.
It is also important to note that, in most cases, reaffirmation of a mortgage is entirely unnecessary. In fact, most debtors should not reaffirm their mortgage in the case of bankruptcy. If you are current on your mortgage payouts, the reaffirmation process is even more nonsensical, as the reaffirmation process treats your mortgage as though it is not covered under various bankruptcy protections.
The only case in which reaffirmation would be desired is when it benefits those paying the mortgage. In some cases, reaffirmation can lead to renegotiated mortgage terms including a change to the amount of payments, schedule of payments, and accrued interest. It is important to note that after a reaffirmation has taken place, if you are unable to pay your mortgage, the lending company can and will sue you for the money.