It is common for one spouse to sign off on a property title during a divorce. However, creditors aren’t part of these divorce agreements, and specifically, mortgage companies are not required to take your name off the original loan. You and your ex-spouse are still both legally responsible for the mortgage despite what was agreed upon during the divorce decree.
If you have filed bankruptcy, you are no longer liable for the mortgage, but your name still exists on the mortgage loan. If you want your name off the loan, you or your spouse need to sell the house or refinance the property into one name or the other.
A reaffirmation agreement is a legal contract which is filed with the bankruptcy court which says you promise to pay all or a portion of a debt that may have been discharged in a bankruptcy case. If there is equity in the house, there is no benefit to signing a reaffirmation agreement if you gave up your interest in the house through the divorce. This is because when you sign a reaffirmation agreement it only reestablishes the liability which was already eliminated by the bankruptcy.
Occasionally, lenders will require both of the parties to sign this type of agreement. Without signing this court-approved legal agreement the lender will often not send you any statements or report any of the payments already made, to the credit bureaus. Basically, the bankruptcy protects you from any future liability regarding the loan, but reaffirming the loan reinstates that liability.
The mortgage lender cannot foreclose on the house just because you did not sign this agreement only if the mortgage payments are not made. If you lost your house in a foreclosure or short sale, you may be responsible to pay the difference of what the house has sold for and what you originally owed. If you have filed bankruptcy and received your discharge, you now need to rebuild your credit. There is no reason to risk your future by signing a reestablishment liability from your past, which was already taken care of in the bankruptcy.
If you need to discuss reaffirmation of a loan during bankruptcy, please get in touch with one of the experienced southern California bankruptcy lawyers at Westgate Law.