In this Blog, we have discussed Reaffirmation Agreements and the reasons why lawyers will almost never recommend reaffirming home loans. However, people who have gone through a Chapter 7 case and wisely chose to not reaffirm their home loan are being told by their lender years later that they cannot modify or refinance their loan because they did not reaffirm their loan during the Bankruptcy case. This, in turn, is leading people to complain on the various legal forums and call their lawyers to fix this “mistake.” This practice by lenders in refusing to modify or refinance a loan because the borrower did not reaffirm is full of holes for many reasons. Most importantly, it was absolutely not a mistake to not reaffirm the home loan in the Bankruptcy case. To the contrary, the mistake is usually reaffirming. In addition, there is absolutely no legal or practical reason the lender cannot modify or refinance a loan that was not reaffirmed. The process is exactly the same for reaffirmed and non-reaffirmed loans. These policies also ignore the fact that the time to reaffirm loans expires when the Bankruptcy case is over, so by the time the borrower calls to modify or refinance, reaffirmation really is a non-issue. The lenders’ legal counsel and managers know (or should know) this so even if the lender wanted people on the hook for the loans, it is too late. It appears these silly, nonsensical policies are just punitive. If you are getting this message from your lender, keep in mind that you got wise counsel from your Bankruptcy lawyer, it was a good idea to not reaffirm (because you still have your house, right?) and you should not be getting your legal advice from an account representative in a cubicle reading stock comments from the lender’s binder notebook.