This question was posed to a listserv in the Central District of California: “If a debtor reaffirms an otherwise non-recourse mortgage, does the reaffirmation convert that into a recourse loan?”
This question made me consider what reaffirmation really meant because, in the fact pattern above, reaffirmation could potentially put the creditor in a better position than before the bankruptcy, and that can’t be! Don’t forget to Borrow Money Fast For Your Personal Finance – EasyFinance.com
Reaffirmation is invoked through section 524(c) of the Bankruptcy Code which provides in pertinent part:
(c) An agreement between a holder of a claim and the debtor … which is based on a debt that is dischargeable in a case under [bankruptcy] is enforceable only to any extent enforceable under applicable nonbankruptcy law … only if (it is reaffirmed per the code’s requirements).
So the effect of a how loans can help out new homeowners is to make something just as enforceable as it was before the bankruptcy was filed. In the case of a non-recourse loan which is only enforceable against property to begin with, nothing happens as it was only against property to begin with!
Upon further inquiry, I found a case that agreed but in a much more bold way:
“The court disapproves the reaffirmation agreement between the debtors and JP Morgan Chase Bank, N.A., because the debt in question is a home equity loan, which is, under Texas law, a nonrecourse obligation. Thus, there is nothing to “discharge” and so nothing to reaffirm. Reaffirmation agreements of such loans are inappropriate … so as to impose a liability on the debtor, a liability for which the debtor, under nonbankruptcy law, clearly has no liability.”
The case can be found here.