Signing a reaffirmation agreement with your mortgage lender is something like glimpsing light at the end of a tunnel. Your bankruptcy ordeal is almost over and you’re keeping your home. Reaffirmation restores the status quo between you and your lender. Unless you negotiate a new contract as part of the process, which is rare, the terms of your mortgage will continue on as before. You don’t include the mortgage in your bankruptcy proceedings, and your liability for it is not discharged.
Continue to make your mortgage payments or, at the very least, make sure they can be made current in the relative blink of an eye. Your lender might not agree to reaffirm if you’re months in arrears. Even if your lender seems reluctant to reaffirm and it rejects your payments, don’t spend that money on anything else. Set it aside because a time may come when the lender does an about-face and demands the money before it will proceed with a reaffirmation agreement.
Let the court know in your Statement of Intentions that you want to reaffirm the loan. This form accompanies your bankruptcy petition, and it relates to property you own that secures loans. When you list your home, check off the box that says you want to reaffirm, not surrender it or redeem it. Redeeming means that you’re going to pay off the entire loan in one lump sum.
Contact the mortgage company and ask for a reaffirmation agreement for the loan. It won’t come as news to your lender that you want to reaffirm because, as a secured creditor, the court will have forwarded the company a copy of your Statement of Intentions. The lender must prepare the reaffirmation agreement, not you or your attorney, because it will include loan information that only the lender has access to.
Sign the agreement when you receive it and file it with the bankruptcy court. The lender’s representative should already have signed before sending the agreement to you. If you have an attorney, he must sign as well. It’s crucial that you accomplish this before your bankruptcy discharge; you typically can’t reaffirm afterward. The judge must approve the deal. He generally will if he finds that it’s in your best interests and it’s not going to strap you financially going forward, driving you right back into debt again.
Even if you don’t reaffirm your mortgage, you won’t lose your home if you remain current with the payments, but the lender might refuse to send you monthly statements or take online payments from you. It may refuse to report your loan activity to the credit agencies, which is something you’ll want to help you repair your credit.
Your bankruptcy trustee can -- and probably will -- object to the court approving your reaffirmation agreement if your equity in the property is more than the bankruptcy homestead exemption that’s available in your state. The balance over the exemption is money that could go to your creditors if the property were liquidated instead.
When you reaffirm your loan, you commit to the contract all over again. If you fall behind with the payments after your bankruptcy is over, the lender can foreclose and your bankruptcy won’t protect you.