Do I Have to Reaffirm my Mortgage to Keep my House in Chapter 7?

One of the most popular questions my clients have about filing Chapter 7 in Atlanta, Georgia is whether they can file Chapter 7 and keep their home. Normally, people who file Chapter 7 bankruptcy are able to keep their home so long as they are current on mortgage payments and there is no equity in the home.

Many Chapter 7 debtors ask if they have to sign a reaffirmation agreement in order to keep their home. A reaffirmation agreement is a legal document binds a debtor to repay secured debt. What that means is where all debt, including secured debt, is wiped out in bankruptcy, a signing of a reaffirmation agreement puts the debtor back on the hook for the full amount of the debt. And, if the debtor signs the agreement, s/he is liable on the debt and can be sued personally on the debt if s/he defaults.

I usually advise my clients AGAINST signing these reaffirmation agreements when it comes to mortgage reaffirmation agreements, especially where their houses are under water. That is because a debtor’s personal obligation on a mortgage note will be wiped out in bankruptcy, absent the signing of the agreement. If the debtor signs the agreement, the bank can sue the debtor personally upon failure to pay and then garnish wages and bank accounts to collect the money. On the other hand, if a debtor does NOT sign the agreement, the bank will still have what is called a “security deed” attached to the property. That will allow the bank to foreclose if the debtor falls behind on the payments even after bankruptcy but does not allow the bank to sue the debtor personally. Normally, as long as a debtor is making timely monthly mortgage payments and is not in default, the bank will not foreclose on the home, even absent the signing of a reaffirmation agreement.

Where a debtor is in debt and needs to file Chapter 7, it does not make practical sense to reaffirm a mortgage liability in the hundreds of thousands of dollars, especially when it is unlikely that the mortgage lender will foreclose if it is receiving payments. Then, if a debtor faces financial difficulty again, s/he can just walk away from the house and allow the bank to foreclose without having to worry about personal liability.

If you live in Atlanta and are thinking about filing Chapter 7 and have questions about keeping your home in bankruptcy, call the Law Offices of Charles Clapp at 404.585.0040 for more information.