In general law

A reaffirmation agreement is where you agree to pay a debt even though it’s been discharged. By signing a reaffirmation you make it as if the bankruptcy never happened with respect to that debt. The question often arises whether you should reaffirm a mortgage loan.

In general, the answer is “no, don’t reaffirm.” First of all, you’re not required to reaffirm. The bankruptcy code has a loophole, if you want to call it that, when it comes to mortgages. It says that if you want to keep personal property that is collateral for a debt, you must reaffirm within 45 days. If you don’t reaffirm you are required to surrender (give back) the property. Personal property is anything that isn’t real property, such as cars, jewelry, stocks and bonds, furniture, etc. Real property is land and houses. The Code is silent about reaffirming loans secured by real property and the cases indicate that a debtor doesn’t have to either reaffirm or surrender as long as she’s current on her payments. She can continue to make the payments without reaffirming.

The advantage to not reaffirming is that if something happens in the future and you can no longer afford the mortgage payment, you can just walk away from the house. If you have any equity in it you could lose that but you can walk away and let the bank deal with the house. Your discharge will protect you against any deficiency if the bank sells the house at a loss.

If you have questions about reaffirming in a particular case, be sure to talk with an experienced bankruptcy attorney.

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