Reaffirmation Agreements

Am I Required to Sign a Reaffirmation Agreement to Keep my House in a Chapter 7 Bankruptcy in Georgia?

My Georgia bankruptcy clients often ask if they should keep their mortgage and are often surprised by my answer. Reaffirming or keeping your mortgage in a Chapter 7 is not always a good idea, especially if you are behind on the mortgage payments. ”
Many people know that if you file bankruptcy, you can choose to affirm your car loan and most people do because you need a way to get around. The mortgage is a different story and here’s why:

In Georgia, mortgage companies’ loans are protected in two ways.

  1. The bank protects itself by requiring that the borrower sign a promissory note. A promissory note is a contract where the borrower promises to pay the amount of the loan and to make the required monthly payment as outlined in the agreement.
  2. The second way a Georgia mortgage company protects itself is by requiring that the borrower sign his or her interest in the house to the mortgage company in the form of what is called a security deed. A security deed is a document that the borrower signs promising the house as collateral. When a debtor or borrower files a successful bankruptcy, the debtor’s individual liability arising from the promissory note is ultimately discharged. That is, the borrower’s personal liability as to the mortgage is wiped out. However, even after bankruptcy, the security deed survives, giving the mortgage company the right to foreclose on the home.

That means that even though you don’t have to keep paying the mortgage and they can’t come after you, the bank can still foreclose and take it away from you under Georgia law. The mortgage company can foreclose on the home, sell it, and recover any monies from the sale.

Bankruptcy Filing Triggers Automatic Default

Even worse, it is technically possible that your mortgage company can foreclose on your house even if you are current on mortgage payments and refuse to reaffirm the debt in a Chapter 7 bankruptcy because most mortgage agreements contain a clause that states a bankruptcy filing triggers an automatic default and gives the mortgage company the right to foreclose on the house.

It is unlikely that a mortgage company would foreclose on a property where the borrower is current on his/her payments, even if she/he filed Chapter 7 and did not sign a reaffirmation agreement.

Why?

In today’s economic climate, mortgage companies are interested in getting paid! Foreclosure is expensive for the bank, and, in a weak real estate market where a high percentage of properties are under water, it is unlikely that mortgage companies can recoup the money out of the property from a foreclosure sale.

Therefore, the chances are good that lenders will not foreclose on your house after you file a Chapter 7 bankruptcy in Georgia when you are making timely and current monthly payments, even if you did not sign a reaffirmation agreement.

So What Exactly are the Drawbacks to Reaffirming Your Mortgage?

The first is, as in the case of your car, signing a reaffirmation agreement means you are on the hook for the mortgage. Thus, if you are unemployed or have unstable income and have a large mortgage balance, it is not a good idea to sign a mortgage reaffirmation agreement.

Further, even if you do make timely monthly payments, the mortgage company still technically has the right to foreclose upon the property for the mere fact that you filed bankruptcy.

Why Would I Want to Reaffirm my Mortgage in Georgia?

If you do (you put in not, think you meant to leave not out) reaffirm the mortgage and make timely monthly mortgage payments, you can rebuild your credit after bankruptcy.

As you can see, there are many considerations involved in the decision whether or not to reaffirm your mortgage in a Chapter 7 bankruptcy. If you are making this decision please consult a qualified attorney. For a free consultation please contact an excellent Atlanta bankruptcy attorney who fights banks at (404) 593-2620 or email info@bettydavislaw.com for more information.