Guest Post by Atlanta Bankruptcy Attorney Peter Bricks.
I often grapple with chapter 7 debtors over getting them to understand that they do not really need to reaffirm their mortgage to keep their home. The primary reasons I emphasize them not reaffirming is that the reaffirmation means the debt is not discharged in the bankruptcy, missed payments can continue to harm the debtors credit, the debtor will be liable in the future for a deficiency balance and the bank can still foreclose if payments are not made in the future anyway, regardless of whether the debtor reaffirmed or not. However, even beyond that, there is another hidden advantage that debtors often do not consider strongly enough. By not reaffirming, the debtor has the freedom to move without repercussion in the future. I recently had a case where the advantage of not reaffirming the mortgage paid off handsomely for the debtor. In this instance, the debtor owed more on his mortgage than the house was worth, but the debtor wished to stay in the home. The debtor did not reaffirm the mortgage, and therefore discharged the debt. By continuing to pay, the debtor stayed in the house. About a year after the discharge, the debtor received a job offer about an hour away from his home. The debtor accepted the job and naturally wanted to move closer to his new office. By not reaffirming, the debtor was able to walk away from his home and move to his new home without any troubles. The bank’s only recourse was to take the property back—the same property the debtor was voluntarily leaving anyway. Now imagine the scenario that the debtor had reaffirmed the mortgage in his bankruptcy under the mistaken impression that he needed to do so to remain in the home. In that case, he would still be liable for the note. If he stopped paying because he wanted to move, he would have a post bankruptcy default, foreclosure and possible deficiency lawsuit to deal with. If he wanted to avoid that, he would have to keep paying on a property he no longer wanted or short sale the home. This example illustrates the point that debtors should always think long and hard before entering into reaffirmation agreements. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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