To Reaffirm or Not to Reaffirm: Home Equity and Bankruptcy

Bankruptcy Lawyer Bryan W. Stone answers the question: “Can I keep my house if I file bankruptcy?”


Thanks to the concepts of equity and the Homestead Exemption, keeping your home during and after a bankruptcy is not only possible, but a popular option for individuals who file for bankruptcy protection. However, if you choose to stay in your home after bankruptcy it is important to understand the concept of reaffirming a mortgage and its pros and cons. Your mortgage lender will almost certainly ask you to reaffirm, and having a grip on what reaffirming is, its pros and cons, and what it ultimately means for you can better inform your decision.


Home loan application Charlotte Debt LawyerHome equity and exemption

Home equity is the percentage of your home that you “own.” For example, say you own a home that’s worth $100,000, and you owe $20,000 on the mortgage. This would mean that you have $80,000 worth of equity in the home. Normally, home equity is considered a good thing to have. However, bankruptcy is not exactly a normal circumstance.

A person filing for bankruptcy protection can choose to protect a certain amount of home equity from the bankruptcy’s creditors through the so-called Homestead Exemption. The maximum amount of Homestead Exemption varies wildly by state. For example, in Kansas and Florida, 100 percent of a person’s home equity is exempt from bankruptcy. Meanwhile, in North Carolina, the homestead exemption for an individual filing for bankruptcy is capped at $35,000 (although married couples who are jointly filing for bankruptcy may exempt up to $70,000).

Depending on your other assets and where you live, the more equity you have in your home, the higher the likelihood may be that you will have to sell your home altogether, using the proceeds to pay off your creditors.


To stay or not to stay?

If the equity you have in your home is exempt, you can normally stay in your home post-bankruptcy—but the mortgage debt does not disappear. If you don’t keep making mortgage payments, the lender will foreclose and you’ll be back in a situation similar to what led you to file for bankruptcy in the first place.

If you do choose to exempt your home equity in bankruptcy so that you can stay in your home, it is important to understand that this equity is not discharged, or erased, along with your other debts in bankruptcy. Exempting an asset like home equity means that your personal liability for the remaining mortgage remains intact.

So practically, what does this all mean? It means that if you do decide to stay in your home after bankruptcy, your mortgage lender will be lobbying long and hard to get you to reaffirm the mortgage.


What does it mean to reaffirm a mortgage?

Reaffirming a mortgage after bankruptcy means that you re-establish your personal liability for the entire loan. Although reaffirming can be risky, lenders obviously advocate the practice because it increases the likelihood that they will recover all the money they are owed. If you refuse to reaffirm, a bank could theoretically seize your home, although this rarely happens. If you keep making your mortgage payments on time, the lender will most likely let you keep living in the home. However, lenders also have several different means of “encouraging” (read: strong-arming) its debtors to reaffirm. They can stop sending you mortgage statements and refuse to report any future payments you make to credit bureaus, stymieing your efforts to rebuild your credit score after bankruptcy.

Ultimately, some individuals end up reaffirming their mortgage when they don’t technically have to do so, but the decision is one to discuss with your bankruptcy attorney.


If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.


About the Author

Kyle Frost Bankruptcy Lawyer Student loan attorneyKyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology.  He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.

Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.

In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.





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