Can we reaffirm our home mortgage? As an Asheville bankruptcy attorney I am often asked if mortgage loans can be reaffirmed. The short answer is no.
The longer answer is that reaffirmation is a specific statutory process in which you agree to be bound by a certain debt after the bankruptcy case ends. In other words, if you reaffirm a debt you agree not to receive a discharge as to that debt. You agree to be responsible for it after your bankruptcy discharge is entered.
Reaffirmation is generally not favored by the Court. This is because a reaffirmation is in opposition to the very reason that people file bankruptcy in the first place, which is to get a discharge of their debts and a fresh start with their finances. Every debt that they reaffirm is one more debt that may prevent them from getting the fresh start that most debtors need.
There are a handful of good reasons for a reaffirmation. The most important one is to retain a vehicle. Most people who are financing a vehicle will have to reaffirm their debt to the finance company if they want to retain their vehicles. This is generally approved by the Court if the person can show that she can afford to make the finance payments and needs the vehicle.
Occasionally, a client will reaffirm a debt to a doctor they he needs post-bankruptcy. Although hospitals can’t refuse treatment for nonpayment of debts individual doctors can. Most people want to keep their doctors and so don’t mind reaffirming reasonable medical bills in order to continue receiving treatment.
The bankruptcy code does not provide for the reaffirmation of mortgage debts. This law has been upheld by the bankruptcy courts of NC. (Some bankruptcy courts in other states have ruled otherwise.) So, even if a client wants to reaffirm a mortgage debt she can’t. More importantly, it’s almost never a good reason to reaffirm such a large obligation. Here’s why: if you reaffirm a mortgage debt and become unable to pay it, the mortgage company can foreclosure and then sue you for the difference between the amount owed and the amount received at foreclosure (called the “deficiency.”) For example, if you reaffirm a $200,000 mortgage debt and default on the payments years later because you lose your job, and the mortgage company forecloses and sells your home for $150,000, you can be sued for the $50,000 deficiency. If you don’t reaffirm the debt the mortgage company can still foreclose if you default, but it can’t sue you for the deficiency since the debt was discharged in bankruptcy.
On a final note, you can only reaffirm a debt while the bankruptcy case is open and pending before the Court. Once the bankruptcy case closes the debt cannot be reaffirmed.