LawFuel.com – Bankruptcy Law News – As a Denver bankruptcy lawyer, I have been receiving multiple calls from clients who filed bankruptcy a few years ago who are now eligible to re-finance their current mortgage or purchase a home.
The mortgage lenders and brokers frequently ask my clients “Did you reaffirm the mortgage?”
Wells Fargo, in particular, has been offering our past clients refinancing of their mortgage only to deny it later because a reaffirmation agreement was not filed in the bankruptcy case.
Wells Fargo tells our clients that they’ll approve them for a re-finance if they will file a reaffirmation agreement in their two-year-old chapter 7 bankruptcy case. Unfortunately, this is not an option. Once the bankruptcy discharge has been issued by the court, the court cannot approve a reaffirmation agreement.
Our solution: If you cannot re-finance with the mortgage lender you had when your bankruptcy was filed, apply with a different lender.
Our contacts at First Option Lending have recently told us that an individual who filed chapter 7 over 2 years ago is eligible to re-finance their mortgage now if they have not missed any mortgage payments and otherwise qualify. You don’t need a reaffirmation agreement to re-finance if your have a stellar payment history and your income is steady and verifiable.
It is common practice for bankruptcy attorneys to advise their clients to not reaffirm their mortgages and other debts. A Reaffirmation Agreement is an agreement made between the debtor (our client) and a creditor (like Wells Fargo) to agree to pay a debt that would otherwise be discharged (forgiven) by the bankruptcy.
The agreement is a court-approved new post-bankruptcy contract with the creditor. It gives back the lender the right to sue our clients (including wage and bank garnishment) if they default in the future.
How can a bankruptcy attorney advise his client to put himself or herself in that situation? Especially today when an astounding number of homes are underwater and the economy is so uncertain.
The benefits of signing the reaffirmation agreement are outweighed by the risks.