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Chapter 7 Personal Bankruptcy: To Reaffirm the Mortgage or Not?

Many clients going through the Chapter 7 Bankruptcy process are asked by their mortgage company to "reaffirm" their mortgage. There is no requirement that you reaffirm your mortgage and what is more, there are certain advantages in not doing so. Many Chapter 7 clients wrongly believe that the bank will take their home if they do not reaffirm the mortgage. You get to keep your home so as long as you have kept the mortgage current and continue to pay.

Moreover, not reaffirming your mortgage can have important advantages. For example, if you keep paying your mortgage for a time and property values go down rather than up, you could stop paying, let the bank foreclose, and not owe the bank a deficiency. The Chapter 7 Bankruptcy discharge still protects you.

One downside of not reaffirming is how the mortgage company will report the loan to the credit bureau. Generally, if you continue to pay without reaffirming the mortgage, a bankruptcy, rather than current payments will show on your credit report. One must weigh the advantages – the ability to bail out of an underwater mortgage in the future - against the negative credit reporting consequences. Each individual's case is different and you should consult with us before acting.

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