In many bankruptcy cases it is possible to completely save your home either by exemption or reaffirmation. Obviously, exemption is the more preferable route since it leaves you with little or no repayment responsibility down the line. As common as it is to exempt your home in Chapter 7 bankruptcy, it is not always possible. In those cases, you may have to choose between reaffirming a home loan or giving the house up.
Home Loans and Secured Debt
In bankruptcy, home loans are classified as secured debt, which carries a personal liability as well as a collateral. This means that you have a liability to repay the loan, otherwise the creditor may take back the collateral. Obviously, the collateral in a home loan is usually the house itself. When the creditor takes the house back, it’s called foreclosure.
Your personal liability to repay the debt is usually discharged after filing bankruptcy. However, the collateral is not, so if you do not keep paying the loan, the creditor is likely within its right to take the house.
What Is a Reaffirmation Agreement?
Most, if not all, of your debts will be discharged after bankruptcy, but if you want, you may be able to reaffirm a debt. Reaffirming a debt is when you enter into an agreement with the creditor to waive your right to a discharge of that debt. Signing a reaffirmation agreement means that you are still liable for the debt after your bankruptcy discharge.
If you reaffirm a home loan, you will be able to keep the house because you will still be liable for that debt. Many people choose to do this because they do not want to give up the house. Filing for bankruptcy and reaffirming a home loan can be very helpful for a lot of people. By discharging other debts, you will probably have more income to keep up with the home loan payments.
Garland & Mason LLC help numerous clients in Manalapan and the surrounding area free themselves from crippling debt so they can start fresh.