Yes, the requirement is that you continue to make your monthly payments on time. In North Carolina, you would need to protect the equity, or the value of home minus the balance of any mortgages. There is an exemption limit of $35,000 per spouse ($70,000 for joint filers). So, if you own a house worth $200,000, and have mortgages totaling $130,000, you can continue to make your monthly payment and keep your home in a chapter 7 bankruptcy case.
Should I Reaffirm My Mortgage Debt?
A reaffirmation agreement in bankruptcy means that you will continue to be obligated on the debt as if you had never filed a bankruptcy case. The most common reaffirmation agreements are done for car loans because most credit unions require the additional obligation in order for folks to keep their vehicles. Most other lenders, in our district, do not require reaffirmation agreements on cars.
Most People Should Not Reaffirm
There is no good reason to reaffirm a mortgage obligation unless the mortgage company has agreed to improve the loan terms. The mortgage company could offer to reduce the principal balance, lower the interest rate, or put missed payments on the back end of the loan. However, most of the time, the mortgage company will not offer these improved terms. If the loan does not improve for my client, my advice is usually to keep the home and continue to make the mortgage payment. This is referred to as “retain and pay.”
The Advantages of Retain and Pay
Without signing a reaffirmation agreement, a Chapter 7 case will discharge personal liability on the mortgage. The effect of this discharge is to eliminate the possibility of the mortgage company suing a client for a deficiency should the home ever be foreclosed on in the future. In short, the mortgage company cannot get more money from you if you are ever unable to pay the mortgage bill. If you signed a reaffirmation agreement, they can foreclose and then sue you for more money.
Mortgage companies will not report on time payments (or late payments) to the credit bureaus if you choose not to sign a reaffirmation agreement. There are much better ways to restore your credit rating after a bankruptcy case, such as taking out a small credit card and paying off the balance each month.
Seek Advice from a Professional
In my practice, I rarely see first mortgage companies who are willing to improve loan terms in a reaffirmation agreement. If you are filing a Chapter 7 bankruptcy case, be sure to talk to an experienced bankruptcy attorney about your options. For those of you in Western North Carolina, I would be pleased to speak with you during a free, initial bankruptcy consultation.
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