Will Reaffirming a Mortgage Hurt My Credit Score?

If you have a mortgage when you file for bankruptcy, you might have to reaffirm it to keep your home. Reaffirming your mortgage creates a new loan agreement. You must make payments each month. Reaffirming your mortgage can help rebuild your credit if you make payments on time; however, if you have continued financial trouble you may lose your home.

Bankruptcy and Credit

Filing for bankruptcy harms your credit score regardless of whether you reaffirm your mortgage. Bankruptcy remains on your credit report for seven years to 10 years, depending on the type of bankruptcy, and may cause your credit score to drop significantly. However, you can improve your credit score significantly within two2 years of filing for bankruptcy by practicing good financial habits. You do not necessarily need to reaffirm your mortgage to accomplish this.

Risk

If you reaffirm your mortgage, your lender can take collection action against you, including foreclosing on the property, if you are unable to make your payments after filing bankruptcy. If your financial situation does not improve and you are therefore unable to make payments, you risk losing your home. Late payments and foreclosure proceedings also have a significantly negative effect on your credit score.

Considerations

If you pay your mortgage on time each month after reaffirming, it can help boost your credit score, especially if you have had your mortgage for a significant period of time. However, if you are declaring bankruptcy, you likely are facing severe financial problems such as loss of income. Thus, you might not be able to make your mortgage payments. If you decline to reaffirm your mortgage, you can walk away from your home and start over once your bankruptcy is approved rather than continue to worry about making payments on time.

Options

When you file for bankruptcy, you can either reaffirm your mortgage, surrender your property or pay off your mortgage. If you reaffirm your mortgage, you will have to continue making payments after your bankruptcy is cleared, while you do not have to continue making payments if you surrender, or give back, your property. If you have the money to repay your mortgage in full, you can keep your home without having to reaffirm the mortgage.