As with any legal document, you want to make sure that you have good counsel such as a Western Springs bankruptcy lawyer. You want to make sure that you discussed the reaffirmation agreement with your Chapter 7 bankruptcy attorney to make sure that it’s in your best interest to sign that agreement. I have had many clients that want to reaffirm on items that they really don’t have to reaffirm on. One example would be old furniture that might have been purchased five or seven years ago and a reaffirmation agreement is sent by a creditor seeking a certain dollar amount. In many cases, the debtor does not have to sign the reaffirmation agreement because the lender is not going to repossess their old furniture that was purchased five to seven years ago. In fact, most lenders are just trying to see if they can salvage something out of the debtor and they will reduce the balance down to the fair market value, not the actual dollar amount that’s owed on the financing. Some cheap bankruptcy lawyers who do not have significant experience will tender that reaffirmation agreement to their clients. The client will sign the agreement and the client will begin to make payments on an obligation that they really didn’t have to pay going forward.
Debtors also want to sign reaffirmation agreements on mortgages because mortgage companies now are claiming if you sign the reaffirmation agreement, then our loss mitigation department or our loan modification department will work a deal with you. If you don’t sign the reaffirmation agreement on the mortgage company, the mortgage company states that they will not work with you and they will not give you a loan modification and they will do everything they can to foreclose and remove you from the house. That is how it works under the bankruptcy process.
Obviously clients are alarmed by this fact and they wish to sign the reaffirmation agreement. I have to then explain in great detail that they are not required to sign the reaffirmation agreement, that if the finance company really wanted to work a loan modification for you, that they could do that without the reaffirmation agreement and they can do that for you right now while the bankruptcy is pending. Clients sometimes have a hard time understanding this fact and they feel that if they don’t sign the reaffirmation agreement for the mortgage, then the mortgage company will not accept their payments, the mortgage company will turn them over to their foreclosure attorneys and then within just a matter of months, they will be put out of the house. The reality is the bankruptcy code does not provide for reaffirmation agreements on mortgages. In other words, they are not mandatory but they can be done if the parties wish to do so.
Unless there is a significant reduction in either interest rate or monthly payment or total amount due, there is absolutely no way that I as a Chapter 7 bankruptcy attorney will ever recommend that one of my client signs a reaffirmation agreement on a mortgage. The law provides for the individual just to continue to make their monthly payment. As long as they are current, they have writes so the mortgage company cannot bring a false foreclosure action and the debtor will be fine going forward.