If you’re not familiar with the phrase “reaffirming your mortgage” it basically means that you’re agreeing to repay all, or a specified amount, of your mortgage debt. This is a legal agreement between you and the lender which when signed makes you legally liable for your mortgage debt all over again, even if that debt had been fully or partially discharged as part of your bankruptcy filing.
Why would anyone voluntarily agree to repay a debt that was discharged? In the case of a mortgage, property owners agree to this because they don’t want their home to go into the foreclosure process.
This goes against the purpose of declaring bankruptcy in the first place, because it’s there to help you dig yourself out of whatever financial hole you’ve created for yourself.
Here are 3 really good reasons for you to not reaffirm your mortgage.
#1 You Need Financial Education
The fact that you were forced to declare bankruptcy usually indicates that you lack basic money management skills. If this is the case then reaffirming your mortgage in the hope that you’ll be able to make all future payments doesn’t make any sense because you’ve already proven that you were unable to make repayments in the past.
It would be far more sensible for you to attend a money management or financial advice course, so that you understand how to correctly manage your finances. Until you can demonstrate to yourself that you’ve learned from your mistakes, it makes absolutely no sense to agree to repay a sizeable debt such as a mortgage.
#2 You’re Increasing Your Debt to Income Ratio
When your debts are discharged during a bankruptcy filing this has the effect of reducing your debt-to-income ratio. What this means is that your credit score will start improving as a result because, on paper, you don’t owe as much as you did before declaring bankruptcy.
Having a reduced outstanding burden of debt improves your credit score, so by voluntarily agreeing to carry debt you no longer have to you\’re actually decreasing your credit score.
#3 You Can Become Debt Deficient
Most homeowners who have had delinquent payments once will tend to have the same issue again within a few months of reaffirming their mortgage. The difference this time around is that you won’t be able to file for bankruptcy again, so your home then goes into foreclosure. This means your lender is going to sell your home to recoup their losses.
When the property is sold and its resale value is less than the value of your mortgage, then your lender can sue you for the balance. This can’t happen unless you’ve reaffirmed your mortgage, and if you have then you’re legally liable for whatever debt your lender is pursuing you for.
Never agree to, or sign, a legally binding document such as a mortgage reaffirmation without first speaking to your attorney. Reaffirming any debt can be an extremely expensive mistake for any person to make.