Reaffirm Mortgage or not?

[AZbills]

Hi everyone! I've been a lurker for awhile now and just beginning my bankruptcy journey. Little background, I have $67k unsecured debt, 2 vehicles completely underwater due to trading in and having large negative equity on them and a mortgage. We are behind on one of the vehicles but current on the mortgage.

I spoke with my lawyer yesterday and he advised me to NOT reaffirm the vehicles because after the discharge I would be able to surrender the vehicles with no repercussions and be able to get another used vehicle with a "fair to poor" interest rate or save some cash and buy a used vehicle outright. He recommended not financing anything over $8k at this point in time. ANYWAYS, my question is this, he recommended that I reaffirm my mortgage so that I will have positive payments being reported to the credit bureaus for me making my mortgage payment. I am not sure if this is a good idea because from my understanding, if I put my mortgage into the Chap 7 and as long as I continue making payments I won't be evicted by the lien holder. We only have about 4k in equity in the home at this point. I am just worried that if 3 yrs down the road something happens financially I would be stuck with the house payment if I reaffirm.

I would love to get some opinions from the ones who have gone through this, did you reaffirm or no? Thanks everyone for the help! I plan on helping others throughout the journey as I become more knowledgeable and can share my experiences.

[justbroke]

Let me answer your last question first. As for reaffirming your mortgage, it's a very bad idea. No one should ever reaffirm debt in order to preserve credit and to show good payment history. My mortgages were discharged and my post Chapter 7 scores (after just 2 years) were in the low 700s without a mortgage showing. You just never know what's going to happen.

I'm sure your lawyer looked at when you purchased and/or refinanced your cars and found that the purchase was less than 910 days from filing. Otherwise you could have redeemed for the actual value of the vehicle(s). That's too bad because redemption has saved me over $11K on one car alone (due to negative equity from a trade in).

Continuing to answer your first question on cars, it's a difficult decision for sure. I redeemed one car and reaffirmed another. (I had to because I converted from Chapter 13 which actually caused me to be in arrears in the Chapter 7! Yes, complex, but it worked out.) After six months, I refinanced both loans to Navy Federal at a very low rate (I can't remember, think it was 4.9%). My credit score was about 640 within 6 months after discharge. My actual "auto enhanced score" was 672. True story. (But I always handled motor vehicle loans flawlessly.)

http://www.bkforum.com/forum/before-the-discharge/chapter-7/64385-why-reaffirming-a-mortgage-is-a-very-very-bad-idea

[AZbills]

I appreciate your response justbroke! I have read many of your posts in other topics. I was thinking reaffirming my mortgage was a bad idea and that is the feeling I was getting from reading many posts on the forums, it took me by surprise that my lawyer was telling me that I should reaffirm.

My vehicles were purchased just under 2 years ago so a redemption wasn't going to be possible and I think in the end it would be best just to get rid of one vehicle at a time after we are discharged. My lawyer also told me that after discharge I will have every car dealer in town wanting me as a new customer so getting a vehicle won't be a problem; the interest rate at first will suck but as my credit score improves I will be able to refinance in the future.

Thanks again for your input!

[despritfreya]

By your handle, I assume you are in Arizona. . .

Reaffirm a mortgage? Boy, I would really like to know what AZ lawyer suggested such an idea, considering that it is highly unlikely that any AZ bk judge would approve reaffirming just so that payments may (lenders are not required to report) show up on a credit report.

Go back to that attny and ask him/her what will happen if the AZ legislature continues down its path in passing statutes that chip away the application of the anti-deficiency statute should you actually get a judge to approve the reaffirmation.

Des.

[AZbills]

I appreciate your insight on this Des! I read the entire thread about why reaffirming a mortgage was a bad idea and there is NO WAY I am going to reaffirm my mortgage. Like many others have said I don't know what tomorrow will bring and I am doing my chap 7 to get a fresh start, not to hang onto old debts.

One question, if I don't reaffirm my mortgage on my credit report my mortgage loan will show a balance of $0 and IIB. If say 2 years down the road I have to walk away from the home, I am free and clear and don't owe anything, but the bank then starts the foreclosure process and once that is completed I will have a foreclosure on my credit report. Am I understanding that correctly?

[despritfreya]

I. If say 2 years down the road I have to walk away from the home, I am free and clear and don't owe anything, but the bank then starts the foreclosure process and once that is completed I will have a foreclosure on my credit report. Am I understanding that correctly?

This is a very good question and one I do not have a definitive answer for. There is case law that says reporting of a foreclosure after discharge is not a violation of the discharge order. The reason being is that it is simply a report as it relates to what happened to the property and not a reflection on what you as a person did or did not do. I don't agree with that line of reasoning but I do know it is out there. I am sure there is case law that goes the other way as well. What I do not know is what happens in reality. Maybe another poster, I'm thinking justbroke, can chime in.

Des.

[justbroke]

One question, if I don't reaffirm my mortgage on my credit report my mortgage loan will show a balance of $0 and IIB. If say 2 years down the road I have to walk away from the home, I am free and clear and don't owe anything, but the bank then starts the foreclosure process and once that is completed I will have a foreclosure on my credit report. Am I understanding that correctly?

From my actual experience an investment property surrendered in bankruptcy, I had no foreclosure on my credit report. The loan was marked as "included in bankruptcy" (IIB), a ubiquitous notation in bankruptcy, and the amount due was set as $0.00 and nothing past due (and all payment history erased). That tends to be both the expectation and the reality of including property in a bankruptcy.

I also included (did not reaffirm) my investment home in the bankruptcy. It has not been foreclosed upon, but that similar ubiquitous "IIB" marking is on the credit report. It is not affecting my score, that I can tell.

Please know that my investment properties were in North Carolina and Florida. As Des wrote, there's really no good caselaw on this topic and I have not had any issues, but I have only dealt with large banks as mortgagees (Bank of America, National City, Key Bank, etc).