Mortgage, Car Payments Not Reported After Bankruptcy

by L. Jed Berliner, Western & Central Massachusetts Consumer Lawyer

February 27, 2011

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 anywayHere’s more, and here’s even moreBut 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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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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Last modified: May 27, 2012