Re-affirmation

• You have an option to allow your debts to discharge through bankruptcy or re-affirm the debt and continue making payments. People generally reaffirm secured debts. If you re-affirm your automobile and you do not have a large amount of equity in it, the judge will usually allow you to keep it as long as you continue to make the payments. Most mortgage loans are re-affirmed. This means that you can continue making payments and remain in the home.
  
  

Upside-Down Mortgages

• If you owe considerably more than your house is worth, your mortgage is considered to be upside-down. You do not have to re-affirm the mortgage debt. If that is your decision, your lender will request your trustee ask the judge to convene a court hearing so that a relief-from-stay can be issued. This is necessary because a bankruptcy filing freezes any action until the bankruptcy discharges or a relief-from-stay is granted. This will allow the lender to begin or continue with a foreclosure proceeding. If you re-affirm your first mortgage but not your second mortgage, your second mortgage holder can institute or continue a foreclosure proceeding.
  
  

Lender's Options

• The second mortgage lender can go forward with a foreclosure action, or he can choose to dismiss the debt. If the property is upside-down and the second mortgage is small, many lenders will walk away from the loan, since they are unlikely to benefit financially from a foreclosure.
  
  

Conclusion

• If you choose to not re-affirm the first and the second mortgage, one of the lien holders will request and obtain a relief-from-stay and foreclose on your property. By going through the bankruptcy process, you will not be liable for any income tax resulting from the foreclosure. If you did not file for bankruptcy protection, you would be liable for a large tax payment to the Internal Revenue Service. If you are not in foreclosure and you want to keep your home but have your other debts cancelled, you should only re-affirm your first and second mortgages.