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4 Things To Know About Reaffirming A Mortgage In Chapter 7 Bankruptcy

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If you are thinking of filing for Chapter 7 bankruptcy, the issue of reaffirming your mortgage will get brought up in the conversations you have with your attorney. Reaffirming a debt is something you can do to keep the same terms with the lender and to keep the asset you are affirming. As you consider whether or not to reaffirm this debt, there are several things you should know about reaffirming a mortgage loan.

It Is Not Required

The first thing to understand is that Chapter 7 bankruptcy will not force you to reaffirm your mortgage. If you choose not to reaffirm it, your lender will most likely allow you to keep your home; however, you will need to make sure you keep up with your payments. It's important to note that your lawyer should speak with your lender to find out what the lender prefers in bankruptcy cases.  

If the lender does not mind if you do not reaffirm the debt, you should be aware that the lender could seize your home through foreclosure if you fall behind on your payments.

Reaffirming Reduces Risk Of Losing Your Home

The benefit of reaffirming your mortgage is that you can keep the exact same terms on the loan that you had prior to your bankruptcy. This also means you will not risk losing your house. One benefit this offers is that you will not have to look for another house to buy and take the risk that you will be turned down for a loan because of your credit. The downside is that once you reaffirm your loan, you will be obligated to pay it and will not be able to file for bankruptcy on it for at least seven years. Reaffirmation means you are entering into a legally binding contract, and your bankruptcy will not change anything about this debt.

Your Decision Will Affect Your Credit

One other benefit of reaffirming your loan is that your lender will keep reporting your payments to the credit bureaus. Consistent, on-time payments are great for rebuilding your credit after bankruptcy, but this will not occur if you do not reaffirm your mortgage. When you decide not to reaffirm the mortgage, the lender will not be required to report the payments you make to the credit bureaus. It will be as if you did not even have a loan, which may make it harder to start boosting your score.

How A Deficiency Is Handled If You Lose The House

If, at some point in the future, you fall behind on your payments and the lender forecloses on your home, your decision to reaffirm or not reaffirm can affect the way a deficiency is handled. A deficiency is the difference between the amount of money you owe on the house and the amount the bank can sell the house for, and this is a negative amount. In other words, if you owe $100,000 and the bank forecloses and sells the house for $70,000, the deficiency is $30,000.

If you had reaffirmed the loan, the bank would have the legal right to come after you for the $30,000. If you had kept the house without reaffirming the loan, the bank could not come after you for this amount. This is an important factor to know when trying to decide which way to go.

Filing for bankruptcy can be a big decision, but knowing whether to reaffirm or not reaffirm debts can also be a major decision you will have to make. To learn more about the bankruptcy process, contact a bankruptcy lawyer in your city today.