Protecting Your Rights And Your Future

Bankruptcy rules give options on reaffirmation of mortgage loan

On Behalf of | Aug 19, 2015 | Personal Bankruptcy

It’s a strange twist of bankruptcy law, but if a debtor does not formally reaffirm his or her home mortgage or other secured loan in bankruptcy, then the debt is no longer owed. This does not mean that the payments don’t have to be made; rather, it results in a situation where the debtor continues to pay the monthly mortgage both during the bankruptcy and afterwards, and stays in the home despite not technically owing the money. This scenario, however, is not as simple as it may at first appear, and it may have consequences in other respects, both in Arkansas and in other jurisdictions.

For example, in some instances, the owner may have different options for turning the property over to the bank when the owner decides to stop paying on the loan years later. Presumably, if  real estate prices are healthy, the property can be listed and the mortgage balance paid off at closing. This is the normal procedure that most people use when selling their home: they pay the outstanding liens out of the sale proceeds at final closing.

In the foregoing example, it is likely that the lien of the mortgage remained on the home even though the debtors did not reaffirm the mortgage loan. In some states, the lien is signified by a deed of trust as opposed to a mortgage lien. In any event, that lien must be removed by the bank in order to sell the home.

In real estate law, there is a distinction between the debt owed on the mortgage loan and the lien of the mortgage that exists on the secured property. That distinction, however, may get complicated or difficult to understand in the bankruptcy context. Consequently, it is highly advisable for the potential bankruptcy filer in Arkansas and elsewhere to obtain an explanation from an experienced consumer bankruptcy attorney prior to making any critical decisions about how to list a mortgage loan or other secured loans within the bankruptcy. In the context of evaluating how to handle the person’s secured debts, the bankruptcy attorney can also provide important information impacting on post-bankruptcy credit repair and how to factor those considerations into the decision.

Source:, “Can I Walk Away From My House After Bankruptcy?”, Geri Detweiler, Aug. 13, 2015