You’ve made your mortgage or car payments after bankruptcy. Your credit report says “zero payments made”. That’s as it should be, and it’s for your benefit. (Your credit will rebuild anyway. Here’s more, and here’s even more. But it’s not all roses.) Here’s why.
A mortgage consists of two parts, the personal obligation that you could be sued upon(wages garnished, bank accounts taken), and the separate lien on your home (recovery limited to foreclosure). The bankruptcy discharged the personal obligation, so the mortgage lender cannot sue you for your wages or bank accounts. The bankruptcy did not affect the lien, so it could still foreclose if you missed payments.
Credit reports only report the personal obligations, which is zero after a bankruptcy discharge. You could have “reaffirmed” the mortgage debt before you got your bankruptcy discharge, which would mean that the personal obligation was not discharged in bankruptcy. But, and this is a big BUT, if something else goes wrong financially after the bankruptcy then the lendder can sue you personally despite your bankruptcy. That would be a terrible situation.
I do not recommend reaffirmations for this reason. Things go wrong. You never expected to file a bankruptcy case in the first place. The benefit of not reaffirming – the true fresh start of bankruptcy – outweighs the modest, short term improvement in credit which will improve anyway over time. However, about 10% of the mortgage and car lenders require a reaffirmation before continuing to send monthly payment reminder statements. Be sure to mark your calendar to make the payments on your own. Some lenders also may refuse to refinance with you, so you might have to go to a new lender.
The only exception is where the proposed reaffirmation significantly improves the existing loan terms. If so, then go for it. It’s rare, but it’s a great place to be.
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Last modified: May 27, 2012