Many mortgage companies ask Chapter 7 bankruptcy debtors to sign reaffirmation agreements if they intend to stay in their house through their bankruptcy. Reaffirmation means that the debtors will remain personally liable on their mortgage note after the bankruptcy discharge, and it means the lender can sue them if they subsequently are unable to make payments. I saw a good discuss of the mortgage reaffirmation topic in a blog post by Atlanta bankruptcy attorney Jonathan Ginsburg. Mr. Ginsburg points out two problems with not signing a reaffirmation; first, future mortgage payments do not help restore credit, and two, without reaffirmation the bankruptcy is a technical mortgage default. In addition, I have found that bank’s do not cooperate with debtor’s who subsquently need documentation, such as payoff numbers, if they have not formally reaffirmed personal liability after bankruptcy.
Notwithstanding the above, I advise my clients not to reaffirm mortgage debt because doing so results in a large personal financial liability. I agree with Mr. Ginsburg’s conclusion that lenders will unlikely default a mortgage for any reason as long as the borrower is making payments. I also agree that merely continuing current payments by itself will not result in personal liability absent a signed reaffirmation agreement.
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