Forced to File Chapter 7 Bankruptcy: To Reaffirm or Not to Reaffirm?
If you are underwater on your house and find yourself past due on your mortgage, you may feel that your hand is being forced. You might feel that you have no other choice, but to file for bankruptcy. Feeling forced to file for Chapter 7 bankruptcy isn’t the best situation, but you do still have options. The first of which is a big one, to reaffirm or not to reaffirm your mortgage?
It’s a very important question that is very difficult to answer. Mortgage companies all respond differently so the answer can’t be a simple black and white response. In many cases, the same mortgage company will even respond inconsistently. Providing an answer that will work in every instance, is impossible, but what we can do is discuss the issues that will need to be addressed:
Can you reaffirm the loan?
Can you reaffirm when delinquent on a loan?
Can you stay in the house after filing for bankruptcy without reaffirming the loan?
A reaffirmation agreement is a legal document; a contract. It’s filed with the bankruptcy court and states your promise to repay all or a portion of the specified debt that would otherwise be subject to discharge at the conclusion of your bankruptcy case.
Find out before you make a decision whether signing a reaffirmation agreement imposes a significant personal liability on you if the worst-case scenario occurs and you end up losing your home in foreclosure. Some states will allow the mortgage company in possession of your reaffirmation agreement to foreclose on a property and also come after you, the homeowner who signed the reaffirmation agreement, for any unpaid mortgage loan balance. If you are a resident of a state that allows this practice weigh the present risks AND the future risks accordingly.
Most mortgage lenders do not allow borrowers to reaffirm on a loan during bankruptcy if they are past due on payments at the time of their case filing. In rare cases, they will allow you to reaffirm the loan and add the delinquent balance to the end of your loan term. That’s a rare occurrence though. In most cases, you need to apply for a loan application. Your delinquent balance can be added to the loan once you receive approval for your loan modification.
Many bankruptcy filers submit their paperwork while they are delinquent on their home loan. In some cases, the homeowner will work out a loan modification with their lender either during or after the bankruptcy case is completed. In other cases, the filer was delinquent when filing, delinquent during the bankruptcy case and delinquent upon receiving their discharge. Attempting to pinpoint which mortgage lenders allow this situation to occur is impossible. The best guess is that some mortgage lenders are simply overwhelmed by the number of delinquent accounts and cannot address them all.
They seem to consider a few main factors:
- The delinquent amount
- The value of the house in comparison to the loan balance
- How many properties are in foreclosure in the area
- If the homeowner is attempting to get caught up on the past due balance
It’s extremely difficult to predict mortgage lender behavior during bankruptcy until the case has actually been filed. Once you file for bankruptcy, you will know your lender’s position. If they accept your payment, you will probably be fine to remain a couple payments behind. You simply have to wait and see. It’s possible that once you file, the lender will no longer accept payments. If that’s the case, you should immediately get in touch to request a loan modification.
If you need additional guidance regarding your home, your delinquent mortgage and your upcoming bankruptcy filing, contact an expert southern California bankruptcy attorney at Westgate Law.