Bankruptcy Basics: Should I Reaffirm My Mortgage?

Bankruptcy Basics: Should I Reaffirm My Mortgage?

If you are considering bankruptcy, and you want to keep your home, reaffirming your mortgage may be an option.  But what does reaffirming your home loan really mean and when is the best time to do it?

What is Reaffirmation?

A reaffirmation agreement is when you agree to repay a debt after bankruptcy even if you receive a discharge on your other debts.

When to Reaffirm a Mortgage

Reaffirming a debt is an individual choice, but reaffirmation should be carefully considered while taking into account the following factors:

  • Desire. Before reaffirming a debt in bankruptcy ask if you really want to keep the property in question.
  • Benefit. After you’ve decided that you want to keep the property, think about what benefits (or drawbacks) this will bring to your life. For example, some bankruptcy debtors might decide that keeping their home after bankruptcy is beneficial because it keeps housing stable for their family.
  • Financial ability. Even if you desire to keep the property after bankruptcy, doing so may not be financially feasible. For example, if you’re paying an expensive mortgage note can you really afford to do so?

Sometimes a mortgage lender is willing to modify your mortgage during bankruptcy. Working with your bankruptcy attorney, it may be possible to negotiate a mortgage modification as part of your reaffirmation agreement. In some cases lenders will reduce interest and your monthly payment.

Since reaffirming a debt carries with it risks, work with your attorney to determine if reaffirmation of your home loan is the right move.