REAFFIRMING DEBT

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REAFFIRMING DEBT

I FILED CHAPTER 7 BANKRUPTCYIN NEW JERSEY IN 11/ 2004 WHICH WAS DISCHARGED IN 2/2005. ON MY “STATEMENT OF INTENTIONS”, THERE WERE 3 CHOICES AS TO “PROPERTY TO BE RETAINED” 1. EXEMPT 2.REDEEMED AND 3. REAFFIRMED. I HAD 2 CREDITORS LISTED AND BOTH WERE CHECKED TO REAFFIRM DEBT.(ONE WAS MY MORTGAGE LOAN AND THE OTHER A HOME EQUITY LOAN) I’VE JUST LEARNED FROM MY MORTGAGE COMPANY THAT A REAFFIRMATION AGREEMENT WAS NEVER EXECUTED.WASN’T IT MY LAWYER’S RESPONSIBILITY TO DO SO BEFORE MY DISCHARGE?. I CERTAINLY DIDN’T KNOW WHAT THE PROCEDURE WAS IN REGARDS TO REAFFIRMATION. I TRUSTED HE DID.

Asked on June 3, 2009 under Bankruptcy Law, New Jersey

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

By not reaffirming your home mortgage, I believe you could make an argument that you no longer have personal liability under that loan.  I think that they would still have a lien against the property - just not against you personally.  In theory this means that if the house burned down and there was no insurance, they could not come after you. 

Some lawyers regularly counsel their clients not to enter into residential reaffirmation agreements for this express reason - to eliminate personal liability.  However, because you may no longer have personal responsibility for paying this debt, your credit report may not reflect the benefit of regular payment. That's why other attorneys who feel that the credit restoration benefits outweigh the risk of personal liability on a mortgage have their clients reaffirm this debt.  

Frankly, I think that the mortgage company would have a hard time trying to foreclose against you now, 4 years after discharge, based on a failure to reaffirm.  There is a doctrine in law called "laches" which says that a party cannot sit on its rights for an extended period of time, then choose to exercise those rights later on.  Here, it would hardly seem equitable for a mortgage company to do so.  I think it is very unlikely that this would happen.  However, laches is a doctrine of equity and the last place you want to be is in court, paying a lawyer to argue on the basis of equity.  At best you would be out several thousand dollars in legal fees and at worst, you lose. 

Bottom line, as long as you are current with the payments, I think it is very unlikely that you would have any problem.  However, you have not detailed your situation and just what the bank is doing at this point.  If they are trying to foreclose based on this, you need to speak with an attorney (not the one who represented you on your bankruptcy filing).  They can best advise you.  Quite possibly you will have a suit for malpractice against your original lawyer.


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