In a chapter 7 bankruptcy discharge, the underlying mortgage debt is discharged, but the lien remains. This means that a creditor cannot force a debtor to repay the debt, but if the debt is not paid, the creditor can still foreclose on the property. However, if a debtor signs a reaffirmation agreement with the creditor, then the creditor can still take action to collect the amount owed.
Generally, it is not a good idea to sign a reaffirmation agreement during a chapter 7 bankruptcy case. After a chapter 7 discharge, Debtors are allowed to keep their home as long as they continue making their mortgage payments. In the future, they may just walk away from their home if they decide that the payments are no longer affordable or if they just have no desire to keep the home. However, if a debtor signs a reaffirmation agreement, the creditor can sue the debtor or take other action to collect the remaining balance. Without the reaffirmation agreement, the creditor can only take the property in a foreclosure action.
Some debtors are concerned about how their payments are reported on a creditor report if no reaffirmation agreement is signed. That’s because some mortgage companies stop reporting payments if no reaffirmation agreement is signed by the debtor. However, debtors always have the option to submit payment information to the credit reporting agencies themselves.