Well, here's the situation on reaffirming vs. not reaffirming: If you reaffirm you are liable for the entire unpaid balance of the mortgage PLUS any & all late fees and penalities they are entitled to levy. And if they foreclose and sell the house for less than the mortgage balance + late fees/penalties, you are liable for that amount, known as a "deficiency". And it is not uncommon for foreclosed homes to sell for less than the amount owed, as foreclosed homes are usually sold at auction, which usually is the lowest price the home might sell for.
If you do not reaffirm, all they can do is foreclose on the house. The debt is discharged in BK7, the only action they can take is to foreclose on the home that secured the mortgage. And since you have already been "months late on the payments" they might be entitled to foreclose even if you keep making payments. It depends on the wording in the mortgage note & your state laws. I know my mortgage has a clause that states that their failure to foreclose if I was ever 30 days late does not prevent them for foreclosing in the future, and that is allowed in Arizona..
In most situations it is not in your best interest to reaffirm any debt that can be included in a BK.
