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Reaffirming Your Mortgage

Imagine that you have just filed your Chapter 7 Bankruptcy and you sign on to pay your mortgage payment. Your servicer has blocked your ability to pay online. It does not happen in all cases but it is very common. Rightfully, you start to get anxious and ask them how to get access to online payments again. They ask you to sign a Reaffirmation Agreement. Stop. What is a Reaffirmation Agreement? Why do you need to sign this to make online payments? This blog will explore what this document means and the pros and cons of signing it.

What Happens When You File Bankruptcy?

When you file bankruptcy, not only are you no longer personally responsible for your unsecured debts, but you are also no longer personally responsible for your secured debts, such as your home and car should you choose to forego these assets in the future.

Please note—this does not mean that you can stop paying the mortgage and keep your property. This also does not mean you should ask your attorney to leave the property out of your bankruptcy—we have to list all assets and debts. It simply means that if you decide you cannot afford the debt anymore or you simply do not want the debt anymore in the future, the creditors cannot come after you personally for any deficiency on the loan.

The Role of a Reaffirmation Agreement in Bankruptcy

A Reaffirmation Agreement is a document that, if signed after you file bankruptcy, states that you are choosing to be “on the hook” for the debt secured to your property again. Essentially, you would be giving up one of the perks of filing for bankruptcy if you sign the reaffirmation agreement.

Pros to Signing a Reaffirmation Agreement

What are the pros of signing a reaffirmation agreement? Not much. Yes, they may open your access to online payments. But let’s be honest—in this day and age, most banks offer an online bill pay service that can be set up just like your servicer’s online system. And if you do not want to do that, you still have the option of paying by phone or mailing in your payment.

Now I know what your next question will be, “Can they force me to sign a reaffirmation agreement for my home?” The short answer is no. The law in SC (See In re Wilson, C/A No. 07-00668-dd (D.S.C. 2007)) states that reaffirmation agreements only apply to personal property and not real estate. The exception that most do not think about is mobile homes. If the mobile home is not attached to your land, it is not considered real estate in South Carolina and though creditors could try and force you to sign a reaffirmation agreement, the judge on your case could deny them this request. We will touch on personal property in an upcoming blog.

Cons to Signing a Reaffirmation Agreement

What are the downsides if you decide not to reaffirm? There is one possible issue with not signing a reaffirmation. The mortgage company may decide to “close the account” and not report your payments to the 3 credit report agencies. As scary as this seems, there is a fix for this. Let’s say that you wish to sell your home and buy another down the line. You could make a “Qualified Written Request” to your mortgage servicer. This forces your mortgage company to send an accounting of all your mortgage payments—pre- and post-petition. This is the proof you need to show you have been making your mortgage payments this entire time. You can even ask that they send this to the credit report agencies.

Let’s say this is not enough. You feel that you must reaffirm. Sure, you could go through the process of a reaffirmation. It requires more attorney’s fees and another hearing. And then, when you get to your hearing, the judge could very well deny the reaffirmation. As stated above, reaffirmations in South Carolina do not apply to real estate and the bankruptcy judge and trustee expects that your attorney knows that. It is a waste of money and time. If you want to be back on the hook for your mortgage, you could always look into a loan modification after your case is closed.

When to Involve an Attorney

Still confused? Attorney Huong Lam is ready to help you through the ins and outs of bankruptcy. Let the Lam Law Firm guide you through what can be a stressful situation. Call our office at (843) 695-7700 to set up your free bankruptcy consultation in Myrtle Beach.

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