July 16, 2019

Can You be Sued for Non-payment of your Mortgage if You Do Not Reaffirm?

I recently received an email from a blog reader asking about his obligations to his mortgage company when he does not reaffirm:

I have read your blog and you are very through so I write you with hopes that you might answer this question for me. I file Chapter 7  in 08, and did not reaffirm my loan. I am still living in the house and did make some payments. However, i have not for the last 8 months. It is my understanding that I must sign a document to reaffirm and that continuing payment in itself is not a reaffirmation…or?  Well it gets a little more complicated.  My house is valued at $410,000 and the bank has offered me a deal that is going to be hard to refuse. They have agreed to let me do a short re-fi in the amount of 180k.  If I agree to that is that in itself a reaffirmation?

Here is my response: in most cases, when you take out a mortgage loan, you are signing two different types of agreements.  The first type is a promissory note whereby you personally agree to make the payments.  The second type of obligation creates a property lien, meaning that you, as the owner of the property, pledges that property as collateral for the loan.

When you file a Chapter 7 and receive your discharge, your personal obligations are extinguished.  However, a Chapter 7 discharge does not eliminate the mortgage company’s lien against your property.  If you “reaffirm” your mortgage, you are actually reaffirming the promissory note and your personal obligations to pay.

For years, many bankruptcy attorneys advised their clients to avoid signing reaffirmation agreements for mortgages, car loans or any other secured debt.  The reasoning – even without a personal “guarantee” lenders are protected by the property lien.  If the lender is willing to accept payments (the so-called “stay and pay” option), the now discharged debtor keeps his property, keeps making payment, but does not have personal liability on the note.

If the debtor misses payments, the lender would still have the right to foreclose or repossess based on the property lien.  The debtor would not have personal liability for any foreclosure or repossession deficiency because his personal liability was extinguished in the bankruptcy.

There is a downside to this “stay and pay” strategy.  First, the debtor does not get any credit report benefit for making payments.  Because the debtor’s personal obligations have been extinguished, the lender no longer reports either a positive or a negative payment history.   A positive payment history from a mortgage company can be a good way to restore credit after bankruptcy, and if you do not reaffirm, you will not get this benefit.

Second, there is the “uncertainty factor” if you do not reaffirm.  Most mortgage or vehicle finance installment notes contain a default provision that includes bankruptcy as a default trigger.  In theory, at least, once your bankruptcy is closed (and the automatic stay of bankruptcy terminated), your lender could declare your loan in default and take action under State law to recover the collateral.  In my experience, lenders would much rather have monthly payments than your collateral but this risk does exist.

Finally, many of my readers have asked me if there is such a thing as “constructive reaffirmation” meaning that by making payments, are you in effect re-obligating yourself?  Are you creating a contractual obligation by your actions?

I think that the answer to this depends on State law but I would suspect that a mortgage or vehicle lender would have a hard time making this argument.  In many States (such as in Georgia) a financial obligation related to real estate must be written and they must have specific terms.  As a matter of general contract law, a contract usually will not be enforceable if its terms are not specified.   I would argue therefore that a debtor’s actions of simply making payments and the lenders actions of accepting such payments should not be enough to create personal liability on the part of the debtor.  I would be interested to know if any of the attorneys who read this blog have a different opinion or if anyone is aware of any case law that says otherwise.

At a minimum, if a lender tries to make the argument that you have somehow re-obligated yourself personally by your act of making payments, I would insist that the lender provide you with case law or other support for its position, and you should consult with a lawyer before agreeing to any payment or taking any action (like signing a new, valid contract) that could create personal liability.

My reader states that his lender has proposed a refinance for $180,000.   He did not say, but I presume that his prior (discharged) mortgage was much higher than this and that his current payments under the “stay and pay” are based on this higher balance.  If he enters into a mortgage contract for $180,000, that contract will function like any other mortgage – and include both personal liability under a promissory note as well as a property lien.   It is not a reaffirmation because the bankruptcy is over – instead, the proposed $180,000 loan deal is equivalent to a new mortgage.  This proposed deal could result in lower payments plus positive credit history, but it will also create personal liability that currently does not exist.  I would certainly advise my reader to discuss his options with an attorney so that he will fully understand the implications of his decision.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. Mr. Ginsberg — I want to thank you for taking your valuable time to write this article. It has been so helpful for me and my husband. We are in the exact same situation as the debtor who emailed you; and you were so kind to write and post this article to help people like us. I have learned a great deal from your advice because I consulted with two Georgia attorneys over our foreclosure and received two conflicting answers. My husband and I were afraid to move from our home if we were going to be obligated to pay for it. But since you state that the debt for the home was discharged in the Chapter 7 bankruptcy we filed in 2008, we can move into a rental we found. Thank you again for bringing peace to our mind and helping us through this very stressful time in our lives. (Sonya and Lee Banks)

  2. This information is really helpful for me; as I recently filed bankruptcy and am now faced with the decision of whether or not to reaffirm my mortgage loan. I have decided not to, but I’m still caught between a rock and a hard place b/c my loan is a joint debt that I hold with my ex-husband and I don’t want it to affect him negatively.

    I’ve emailed you a question that I hope you might be able to provide some guidance on.

    Thanks Jonathan for being so thorough in your response. The above article really clears of many questions that I had regarding reaffirming a debt.

  3. Mrs. W – thanks for your kind words. Generally, if you do not reaffirm a mortgage debt, your personal liability on that debt will be extinguished by your discharge. Any joint debtor will remain personally liable. Your refusal to reaffirm will not necessarily cause a default event and if mortgage gets paid, generally the lender will not take any adverse action. Hope this helps. JCG

  4. if yoi did not reaffoirm the loan during your chapter 7 bk, and you are stil making your mortgage payments, can you still write off the interest at the end of the year?

  5. HI Jonathan. I have an hearing this week that is interesting. In aC7 case with underwater mortgage, my client is current and we indicated intention to reaffirm. But we have not executed the reaff. Bill Layng (as crediotr counsel, not as trustee) filed a MOtion to Compel the re-aff. I love this as it may make Judge Mullins rule on what he thinks of pay and stay. Is it a true option, or just a limbo during which time lender can either accept payments, or start to foreclose. I for one think that COMPEL is the wrong remedy. So is withholding discharge (but this is closer I think). I will argue that proper remedy is lifting stay on the home, and debtor beware. Is there a strong argument you know of that “So long as debtor is current, then no foreclosure is available under Georgia law.”

    Let me know if you have any thoughts on this. I of ocurse, will et you know what happens. Might make a good blog article.

  6. As we discussed at court last week, I am interested to hear what happens – please let me know and I’m happy to publish your guest post. I can’t believe that the judge would compel a debtor to reaffirm.

  7. hi Johnathan
    Here is my situation: Filed chapter 7 last year did not reaffirm loan, My husband got transferred right after and the home is vacant and for sale there is equity (not alot) but of course home owners went double and now payment is too high! they held last months payment and charged us late fee. Do I sent my regular payment to escrow or pay what i can and let it sit til we can sell or forclose it?

  8. Melissa, if you did not reaffirm you have no personal liability on the mortgage note. The HOA debt is probably a different story. I would talk to your lawyer about how to proceed.

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