For many of my chapter 7 clients it’s hard enough for them to grasp the severity of their financial condition, which unfortunately and oftentimes includes unemployment, loss of income, divorce any many other life changes. In those rare instances when a mortgage lender actually sends over a reaffirmation agreement asking if a debtor is interested in re-obligating themselves, I always find myself in a dilemma, especially knowing that it may take several years for them to fully recover, not necessarily from the bankruptcy, but from all the things that caused them to end up bankrupt in the first place. With that being said, I wouldn’t sleep very good at night if I saddled my clients with that kind of high dollar mortgage debt.
Let me explain it in simpler terms: If you reaffirmed your mortgage debt and later defaulted on your payments, your mortgage lender could sell your home at a foreclosure sale. If your home is sold for less than the amount owed (which happens all the time) you may owe the deficiency balance.
In fact, I don’t recommend reaffirming a mortgage debt unless there is significant equity in your home. I want you to understand THERE IS NO LAW REQUIRING DEBTORS TO REAFFIRM THEIR MORTGAGE DEBT and as long as the monthly mortgage payments are made on time and the account remains current, the mortgage lender will not foreclose on the property. Plus, keep in mind by not reaffirming the mortgage debt gives you the option of walking away from the home a year or two down the road without any obligations. If you lose your job a year after bankruptcy and can no longer afford your home, you are not financially obligated to continue making any payments.
On the flip side, some (not all) mortgage lenders get a little vindictive once you decide not to reaffirm your mortgage debt. You may not be able to pay by ACH debit or online so it’s important to keep a mortgage statement on hand with an account number and payment mailing address. Depending on the mortgage lender, they may also stop generating monthly mortgage statements and some even refuse to report to the credit reporting agencies. It’s really something debtors should take into consideration if there is any possibility of refinancing the home down the road. A potential new mortgage lender may want to see those past mortgage payments reporting and timely reporting of mortgage payments will help you reestablish your credit after a bankruptcy.
If you have any questions about reaffirming mortgage debt or considering bankruptcy contact the Florida Law Offices of Robert Peters at 904-421-6907 or visit our website at www.RestartYourLifejax.com. We’d love to hear from you.