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  • Bankruptcy
  • Clint W. Smith, P.C.
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  • March 13, 2014


Can I Refinance My House After a Bankruptcy?


As a bankruptcy attorney, many people come to me years after their chapter seven discharge and say “I can’t refinance my house because I didn’t do a reaffirmation agreement.”

Reaffirmation Agreement

Lenders typically say that they won’t refinance your house unless you did what’s called a reaffirmation agreement. This is something you sign while in bankruptcy and before discharge. It is a note which said “I will repay this debt even though I could have discharged it in bankruptcy.”

Why would you do that? Well, there are some reasons.

We don’t do it on mortgages because it just doesn’t make sense. First of all, it doesn’t gain you anything. They cannot come after you in Arizona for a deficiency claim. This means that if the first mortgage ultimately is not paid and forecloses and your house is taken back, they can’t come after you for any money. But they can ding your credit. They can hit you pretty hard. If you have that two to three years after your bankruptcy and you can’t file bankruptcy again for eight years, you are in trouble. You are going to have a hard time rebuilding your credit.

Don’t Sign that Agreement

So I recommend that you don’t sign that agreement. First of all, the lenders don’t offer it to us unless we ask for it. Let that debt simply continue to be paid as long as you feel you can. If it comes to a point where you can’t afford it anymore, you can stop paying and ultimately they will foreclose because they do have a lien but they can’t ding your credit. The foreclosure will show up and you do have time frames on that if you want to buy another house but missed payments and those kinds of things do not show up on your credit report. It does not hurt your score at all.

On the other hand, what’s the benefit? Well, in this situation I have people say “They told me that if I had reaffirmed they would have reported me positive going forward.” That is true. But there are other ways to report positive, like on your car, which people do reaffirm on all the time, and a credit card or two which you might get after your bankruptcy. You can pay some small amount. The interest really doesn’t matter. You can pay the balance down to five bucks a month and just use a very small portion of that credit card and you can rebuild you score pretty fast.

Don’t Re-Open Your Bankruptcy

If somebody comes to you and says “Well, I would like to refinance you but I can’t do it because you didn’t reaffirm, I suggest you don’t go back and re-open your bankruptcy. That would be a mistake because that starts a new clock ticking on when you got your discharge because the court basically has to unwind your discharge, unwind the closing of the case and reopen the case. It starts a new ten years going on your credit report. It causes all kinds of problems on it. And all they really needed to do was look back on your history and you can show the history of when you made the payments. And that applies to many lenders. So if it is your lender that says “We won’t look at that” say “Fine, I’ll go to a another lender”, because if your house is eligible to be financed  there are lots of lenders that are willing to do it a year or two after a bankruptcy. It can be done. You don’t have to buckle into whatever these people say after the discharge is entered, two years after the discharge. It’s their standard schtick and that’s what they will say but it doesn’t mean you have to do it.

Find Someone Who Knows

So find somebody who knows what they are talking about. There are ways to rebuild credit. We offer ways to do that in my “Beyond Bankruptcy Course”. We can show you how to rebuild your credit and what kinds of things to look out for.

Just a word to the wise about refinancing a house after a bankruptcy.

Need help? Call us today 480-807-9300. We specialize in individualized help.

Clint W. Smith, J.D.
1423 S. Higley Rd. Suite 120
Mesa, AZ 85206

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