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What does it mean to reaffirm a mortgage?

Choosing to reaffirm, debtors can protect their homes in Chapter 7 bankruptcy.

Reaffirmation is a step that many people in debt take as part of a bankruptcy action.

In simple terms, reaffirming a particular debt means the individual has agreed to continue paying the debt rather than include it in the petition filed with the U.S. Bankruptcy Court. As a result, the debtor's obligation to make payments on that debt will continue outside the bankruptcy.

Reaffirming a debt is most often related to home mortgages and car loans, allowing debtors to continue making payments so they can keep their property rather than liquidate it to pay off creditors.

"The creditor will start sending statements again and report future payments to the credit bureaus," writes Los Angeles attorney Justin Harilek on Bankrate.com. "This usually allows you to rebuild credit more quickly post-bankruptcy. Going forward, adhere to the terms of the original agreement that existed prior to the bankruptcy. As long as you continue to make your payments, the mortgage lender cannot force you from your home."

The reaffirmation process begins when the debtor discloses in the bankruptcy papers how the secured debt - loans that are backed by tangible assets - is going to be handled. It can be surrendered to the creditor, sold to pay the debt or reaffirmed.

"Reaffirmation is voluntary. A creditor cannot force a debtor to reaffirm a debt. If a debtor opts to reaffirm a debt, he must sign a document known as a Reaffirmation Agreement which sets forth the terms of repayment," according to FilingForBankruptcyOnline.com.

However, there is a down side to reaffirmation. If the debtor reaffirms a debt and later defaults on it, the creditor can take legal action to be paid or regain the property. In cases when debtors choose not to reaffirm, but continue to make voluntary payments, the debt will be discharged in the bankruptcy. But if a default occurs later, the lender will only be able to file legal action to regain the property, not to pursue collection efforts against the debtor.

One point that debtors must keep in mind is that not all lenders will agree to a reaffirmation. Even when an agreement is signed by both parties, a debtor who is having doubts about the reaffirmation may cancel the agreement by sending written notice to the creditor. The agreement must be rescinded within 60 days of its filing with the court, or at any time before the bankruptcy is discharged, whichever is later.

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