Filing for bankruptcy is already a stressful process, and deciding whether to reaffirm your mortgage adds another layer of complexity. Many homeowners assume that as long as they keep making payments, they can keep their home—even without reaffirming. Unfortunately, that’s not always the case.
The consequences of not reaffirming mortgage can be severe, affecting your credit, home ownership rights, and long-term financial stability. In this guide, we’ll break down the risks and help you make an informed decision.
What Does It Mean to Reaffirm a Mortgage?
Reaffirming a mortgage means signing a new agreement with your lender after bankruptcy, stating that you’ll remain personally liable for the debt. Essentially, you’re opting not to discharge the mortgage in bankruptcy, keeping the original loan terms intact.
If you don’t reaffirm, the mortgage debt is wiped out in bankruptcy, but the lender still holds a lien on the property. This creates a tricky legal situation with long-term repercussions.
5 Major Consequences of Not Reaffirming Mortgage
1. Your Lender Can Foreclose on Your Home
Even if you’re making payments on time, not reaffirming means the lender has no legal obligation to report your payments to credit bureaus. Worse, they can still foreclose if you default—even years later.
2. You Lose the Chance to Rebuild Credit
Since lenders may not report payments, your credit score won’t improve from timely mortgage payments. This makes it harder to qualify for future loans.
3. No Equity Accumulation or Ownership Benefits
Without reaffirmation, you’re essentially renting from the bank. You won’t build equity, and some lenders may restrict refinancing or home equity loans.
4. Risk of Higher Interest Rates in the Future
If you need a new mortgage later, not having a reaffirmed loan history may lead to higher interest rates due to perceived risk.
5. Difficulty Selling or Refinancing Your Home
Many buyers and lenders hesitate to deal with homes under a non-reaffirmed mortgage, making transactions complicated.
When Should You Consider Reaffirming?
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You plan to stay long-term in the home.
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You want to rebuild credit through mortgage payments.
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The home has positive equity and is worth keeping.
Alternatives to Reaffirming a Mortgage
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Ride-Through (Pay and Stay): Keep paying without reaffirming (not allowed in all states).
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Loan Modification: Negotiate better terms post-bankruptcy.
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Refinancing: Get a new loan after bankruptcy discharge.
Final Thoughts
The consequences of not reaffirming mortgage can haunt you for years. While reaffirmation isn’t always the right choice, understanding the risks helps you make the best decision for your financial future.
FAQs on Mortgage Reaffirmation
Q: Can I keep my home without reaffirming?
A: Possibly, but the lender can still foreclose, and you won’t get credit for payments.
Q: Does reaffirming hurt my credit?
A: No—it helps rebuild credit if payments are reported.
Q: What if my home is underwater?
A: Reaffirming may not be wise if you owe more than the home’s value.
For more details, check the Consumer Financial Protection Bureau (CFPB) or consult a bankruptcy attorney.