Dear Bankruptcy Adviser,
I got divorced in July 2009 and signed my name off the deed and put it into my ex-wife's name. I filed Chapter 7 bankruptcy, which was discharged in March 2012, after the house was in her name. However, the mortgage is still under my name and was in the bankruptcy. What are my options? Is it smart to keep the loan as is, or should I reaffirm the loan? There is equity in the house, and the payments are up-to-date.
One spouse routinely signs his or her name off the property title to finalize a divorce, so I assume that is why you signed your interest in the house over to your wife. The important point to note here is that your creditors -- most notably in your case, the mortgage company -- are not part of the divorce proceedings. While you are legally allowed to sign your name off the deed to your home as part of the divorce settlement, the lender does not have any obligation to remove your name from the mortgage loan.
This means that while your divorce decree says your wife is the owner of the house, you and your wife are still legally responsible for the mortgage. The divorce decree could also state who will make future payments, yet the lender can still hold either of you personally responsible to pay. The divorce decree would give you options to make your spouse pay. Just know the lender does not care what the divorce decree says.
Now that you have filed bankruptcy, you are no longer liable for the mortgage, but your name still remains on the loan. The only way to remove your name from the loan is for your wife to either sell the house or refinance the property into her name only.
In your case, there is no benefit to signing a reaffirmation agreement because you relinquished your interest in the house through the divorce. Signing the reaffirmation agreement would only re-establish liability recently eliminated by the bankruptcy.
A reaffirmation agreement is a legally enforceable contract, filed with the bankruptcy court, which states you promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case. Some lenders demand you sign this agreement and will not send you statements or report payments to the credit bureaus without the court-approved agreement.
In simple terms, the bankruptcy protects you from any of this future liability, but reaffirming the mortgage loan reinstates that liability. It is also important to note that the mortgage lender cannot foreclose on the house simply because you did not sign this agreement, only if the mortgage payments are not made.
For your ex-wife, this means that if she is on the mortgage, she would be the only one liable on the loan because she did not file for bankruptcy. And you don't need to reaffirm the loan to keep making payments on the mortgage. As long as payments are made, whether by you or your ex, the house cannot go into foreclosure.
As for you, I would suggest keeping the loan as it now stands and not reaffirming it. You have filed bankruptcy and received your discharge. Now you need to rebuild your credit. There is no reason to risk your future by re-establishing liability from your past.