Stay and Pay After Filing Bankruptcy

Can you stay and pay for your home after filing bankruptcy, or do you have to surrender or reaffirm your home? This question is asked by a lot of bankruptcy filers in connection with whether or not they intend on keeping their principle home. Technically, if your bank is willing, there is no reason you cannot stay and pay after filing for bankruptcy protection.

Seal of the United States bankruptcy court. Ch...

Bankruptcy Law on Stay and Pay

In bankruptcy law, whether or not you stay and pay is something you decide between your mortgage bank and yourself. If you are filing a Chapter 7 bankruptcy, you must fill out Official Form 8, A Chapter 7 Individual’s Statement of Intent. In Part A of Form 8, the document asks the filer to describe the secured property and then to check whether or not you will surrender or retain the property. Below those boxes, you are given three choices to choose from if you checked you are retaining the property. These three choices include redeeming the property, reaffirming the debt, or a check box listed for “other” with a space to explain what other choice you have for retaining the property. In the latter spot, you can choose stay and pay if you like.

Many bankruptcy lawyers may insist you choose to surrender your property if you plan not to reaffirm your debt. This will insure that the bankruptcy court will discharge the debt at the close of the bankruptcy. Surrendering your property does not mean you are giving up ownership and the relationship with your bank. It simply means you are giving up any reason for the bankruptcy court to protect the debt from discharge.

Depending on the district bankruptcy court in which you file, you may get by with checking the retaining box and then claiming stay and pay on the “other” section. Unless you sign a reaffirmation agreement, the bankruptcy court is more than likely going to discharge your debt in a Chapter 7 bankruptcy proceeding.

The Practical Side of Stay and Pay

There is a practical side to stay and pay for your home instead of officially reaffirming the debt. When you reaffirm a debt in a Chapter 7 bankruptcy, that means you give up all your rights to have the debt discharged. Discharging debt is the reason you file a Chapter 7 bankruptcy. Unless you have the written consent of your lawyer or the bankruptcy court judge, you cannot get approval of a reaffirmation agreement.

If you want to keep your home, the practical way after filing for bankruptcy protection many will argue, is to simply keep up payments on your home before, during and after the bankruptcy has been filed. Many banks will allow the good faith to allow you to stay and pay.

Nevertheless, be warned. There are some mortgage companies who will not honor a stay and pay plan. That is the advantage of a reaffirmation agreement during the bankruptcy process. Many banks have a bankruptcy clause in your secured agreement that if you file bankruptcy, they have the right to foreclose on your property even if you have maintained all your payments on time.

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