Should I reaffirm my mortgage in Chapter 7?

There is no requirement under the bankruptcy code for a debtor to reaffirm debt on real estate. The consensus among attorneys that it is not a recommended.

Back in 2005, when the bankruptcy code was amended, vehicle finance companies fought very hard to create a requirement for debtors to reaffirm loans on personal property. Prior to that time, the general practice with vehicle was a “pay and drive”, meaning that as long as the consumer maintained the payments, the finance company could not repossess the vehicle. This was a great option for debtors who were upside-down in their vehicles, since if in the future they couldn’t afford their payments, they could simply surrender the vehicle without any deficiency (balance on the loan after vehicle is sold at auction). However, 11 USC 521(a)(6) created an affirmative duty for debtors to reaffirm personal property debt within 45 days of the first meeting of creditors, essentially ending that practice of “pay and drive”. The 2005 amendments to section 521 did not affect real property and therefore debtors have the right to keep property and maintain payments without reaffirming the debt. See In re Wilson, 372 B.R. 816. In the Wilson case, the mortgage creditor sought the court to compel the debtor to reaffirm or in the alternative foreclose on the property. The ruling of the court was that the “Debtor has the right to retain her real property without being required to reaffirm or redeem, so long as she remains current in her payments and complies with any other contractual obligations, such as maintaining insurance on the property.” In summary, there is no legal requirement for a debtor to reaffirm a mortgage. Quite the contrary, the court specifically says that Debtors don’t have to.

As a side note regarding reaffirmations of real property: If a debtor is not represented by an attorney and he wants to reaffirm a personal property debt the court needs to make a determination that the agreement is in the best interest of the debtor and that it does not impose an undue hardship on the debtor. However, the code says that in situations where the debt is secured by real property, the court does not make that determination, the court is simply required to hold a hearing to advise the debtors of various effects of reaffirmation. 11 USC 524(c)(6)(A)&(B). Most of the judges in Central District of California seem to use that hearing to explain why the debtor should not reaffirm the mortgage and suggest that they rescind the agreement.