When you meet with your St. Louis Bankruptcy Attorney, he or she will go through the bankruptcy process and will likely explain what a reaffirmation agreement is. A reaffirmation agreement is an agreement between you and your creditor that is signed after your bankruptcy case is filed and is typically applied to secured loans such as houses and cars. The reaffirmation agreement is a contract that your creditor prepares that is stating that you agree to assume liability for the loan again, as if the bankruptcy did not happen for that specific secured debt. While it is mandatory for you to sign a reaffirmation agreement for a car that you want to keep post-filing, it is not mandatory to sign a reaffirmation agreement for a mortgage.
If you file for Chapter 7 bankruptcy and have a house that you are current on and want to keep, you will be presented with the option of reaffirming your mortgage. Whether or not the reaffirmation agreement is in your best interest, though, depends on your case. By agreeing to reaffirm a mortgage, you are re-signing the contract you originally signed for your mortgage which states that you can afford to continue making payments and that you assume liability for the loan. If you can afford to make the mortgage payment on time and for the remaining length of the terms of the loan, then reaffirming might be a good option for you. Once you reaffirm your mortgage, your payment history will be reported to credit bureaus, and your credit score can begin to be rebuilt. Reaffirming will also ensure that you will have no issues down the road with possible refinancing options, since many lenders require the reaffirmation to be in place before they can enter into any loan modifications, etc.
If you are unsure of your ability to remain current and on time with your payments, reaffirming might not be the best option for you. Late and/or sporadic payments will not be reported to the credit bureaus, meaning you will be able to rebuild your credit in different ways. In addition to this, typically, as long as the mortgage company is receiving your payment, they will allow you to remain in the house. If in a few years you decide you do not want to remain in the house or if the house has a significant decrease in value, if you do not have a reaffirmation agreement in place, you are able to walk away from the house and the loan just like you would be able to if you surrendered the property through the bankruptcy.
If you decide that you do want to reaffirm your mortgage, your mortgage lender will send your attorney a copy of the reaffirmation agreement, and your attorney will then forward you the copy with an explanation of what the contract is, and a set of instructions on how to fill it out (*your attorney may also be able to meet with you in person to assist you with filling out this contract). Once you and your attorney have gone over the reaffirmation agreement, the paperwork will be sent back to the creditor, who will then file it with the bankruptcy court. Your reaffirmation agreement must be filed with the court before you receive your discharge.
It is important to make sure that the reaffirmation agreement is actually filed with the court and approved, because this is what makes the reaffirmation agreement legitimate and in place. On occasion, a creditor will receive the reaffirmation agreement that you and your attorney signed, and then will, for whatever reason, not get it filed with the court on time. If this step is missed and your case is then closed, you did not reaffirm the property. As stated before, as long as you continue to make payments on your mortgage, you will be able to remain in the property; however, this could become a major issue if you were interested in rebuilding your credit or if you want to refinance down the road. If this happens, and is not realized until after your case is closed, you do still have options. The court allows you to reopen your case to get the reaffirmation agreement filed. However, there are fees that are incurred by this, including court costs and potentially attorney fees depending on your case. Once your case is reopened, and the reaffirmation agreement is filed, you will receive a new discharge date, and your case will be closed once again.
Deciding to reaffirm a debt is a serious financial decision, and should be considered very seriously by debtors before they sign anything. Taking on the liability of a loan post-filing for bankruptcy in a way can leave you without a true fresh start that a bankruptcy typically provides. While you do have the option to rescind a reaffirmation agreement within a certain time frame after it is filed, signing a reaffirmation agreement should be carefully considered by all debtors.