To reaffirm Mortgage loan or not to reaffirm a mortgage loan in bankruptcy?
Why would I not re-affirm my mortgage?
In Minnesota, if the mortgage bank forecloses by advertisement which 99% of residential mortgages do in Minnesota, they forego any deficiency (meaning the difference of what they receive in foreclosure and what you owe) for a shorter redemption period (six months that you can stay in the house after the sheriff’s sale before the bank receives possession). The First mortgage gets the house and gives up any deficiency debt owed by the homeowner but any additional liens on the property such as second mortgage and/or lines of credit will come after you for the amount you owe should you ever find yourself in a foreclosure situation since the first mortgage gets the home and all other mortgage liens are only left with the debt. See Foreclosure and Bankruptcy.
Therefore when your bankruptcy discharges these debts you may not want to re-affirm because if you find yourself falling behind and in a foreclosure situation after bankruptcy, you legally do not owe these debts. Therefore should your house fall into foreclosure after bankruptcy, you are not stuck owing a debt to a second mortgage or line of credit. If you are upside down or have no equity, you may not want to re-affirm the first mortgage either because you might find yourself in a position that you cannot make your payments or simply have no equity or reason to keep the home (especially if there are other costs to keeping this home). Therefore, if you received a discharge and did not re-affirm, a future foreclosure will not leave you with more debt that you cannot pay because you have already been discharged from legally owing the debt. If you did re-affirm a second mortgage or line of credit and find yourself in a foreclosure within a few years after your bankruptcy, you cannot file another bankruptcy for 8 years from your prior filing and are stuck with the debt. In conclusion, each case is different and depending on your situation, equity, past due, monthly payment, budget, and circumstances it may make sense to re-affirm the first mortgage loan or to not re-affirm any secured loans and simply keep paying to keep the home.
What if I did not reaffirm a secured loan but continue to pay it?
Many debtors keep property secured by a loan (typically a house or car) and continue to pay on the loan after bankruptcy without reaffirming the debt. If you did not reaffirm the debt during the bankruptcy, it should be listed as discharged, even if you are keeping the property and continuing to pay on the loan. Post-bankruptcy payments and delinquencies on such debts will not show on your credit report unless you re-affirm the mortgage. See Credit Bureau Reporting of Mortgage Loans after bankruptcy. (There are significant disadvantages to signing reaffirmation agreements, which you should discuss with your attorney.)
Ronan R. Blaschko, Bankruptcy Attorney primarily serves the Dakota County, Ramsey County, Hennepin County, Washington County and Scott County areas in Minnesota, including cities Saint Paul, West St. Paul, Inver Grove Heights, Eagan, Apple Valley, Burnsville, Cottage Grove, Mendota Heights, Minnetonka, Richfield, Edina, Eden Prairie, Bloomington, Golden Valley, New Hope, Plymouth, Maplewood, Oakdale, Stillwater, Lake Elmo, Roseville, Little Canada, Minneapolis, Woodbury and Afton in in Minnesota.