How your accounts are reported on your credit report after bankruptcy matters. The information contained in your credit report dictates your credit score, and your credit score determines your credit-worthiness. The higher your credit score, the more likely it is that you’ll be able to secure loans and lines of credit with favorable terms and low-interest rates.
One way to rebuild your credit after bankruptcy is to have on-time, monthly payments on secured debt (like your mortgage or car payment) reporting. So long as you are paying your mortgage on time, it is to your benefit to have those payments accurately reflected on your credit report.
Understanding Mortgages As Secured Debts
Mortgages are “secured debt,” meaning that the debt itself is backed by collateral, in this case, the house (property) itself. When you take out a home loan you sign two documents:
- A promissory note agreeing to be personally liable to pay back the debt; and
- A deed to secure the debt, which gives the bank the legal right to foreclose on the home if you default on the loan.
It is important to understand that a mortgage is a two-part legal contract. It is possible to erase personal liability on a mortgage debt, while the deed securing the debt remains.
Mortgages in Chapter 7 Bankruptcy
Chapter 7 bankruptcy discharges (erases) personal liability on a mortgage. This means that if you file for Chapter 7 and receive a bankruptcy discharge order, you will no longer be legally obligated to pay back your mortgage. However, this does not mean that you can stop paying your monthly payment and keep your house!
Keep Your Home and Continue to Make Payments on the Loan
If you plan to keep your home that has a mortgage after bankruptcy, you must continue to make your monthly house payments during and after bankruptcy. Home loans are secured debt, meaning the loan is attached to the home as collateral. If you do not make your payment, the mortgage company will have the right to foreclose and take your home.
Reaffirming Your Home Loan
If you want to insure your home will not be taken by the mortgage company after bankruptcy, the U.S. Bankruptcy Code requires you to “Reaffirm” your mortgage during the bankruptcy. This means you need to sign paperwork that reaffirms the terms of your mortgage. There are other implications of reaffirmation agreements as well, which we will go over during our free consultation.
If you do not want to or cannot keep your home, you have the options of surrendering the home and erasing the debt. Even though the debt is no longer attached to you, the debt is still attached to the house. The mortgage lien survives the bankruptcy. If you fail to make your monthly payments, the lender retains the right to foreclose on your home until the deed is paid off in full.
After Chapter 7 bankruptcy your mortgage payments will report on your credit report If you reaffirm the debt. If you do not reaffirm the debt they will not report because you are no longer personally liable to pay back the debt.
Mortgages in Chapter 13 Bankruptcy
Chapter 13 bankruptcy does not generally discharge (erase) personal liability on a mortgage. There are some exceptions, but they are rare.
Chapter 13 bankruptcy is a three to five-year repayment plan. During the course of your Chapter 13, you make a monthly plan payment to the bankruptcy trustee. The plan payments go toward paying back some or all of your unsecured debts and other debts that may be paid within the plan. For example, you can catch up on missed mortgage payments through your Chapter 13 plan payments.
However, long-term secured debts, like mortgages, are typically paid “outside of the plan.” During Chapter 13 you continue to pay your normal monthly mortgage payment, separate from the monthly plan payment you make to the trustee.
After Chapter 13 bankruptcy your mortgage payments should report on your credit report. If a mortgage creditor reported to the credit reporting agencies before your bankruptcy was filed, then there is an obligation to report after the bankruptcy.
A few months after bankruptcy it is important to review your credit report and make sure all of your accounts are accurately reporting. If you find your mortgage is not properly being reported, then you should dispute it. When your on-time, monthly mortgage payments accurately report it will help improve your credit score.
Pursuant to the federal Fair Credit Reporting Act (FCRA), credit reporting agencies have a legal duty to accurately report information and keep the information up-to-date. You have the right to dispute inaccurate, incomplete, or outdated information, or other mistakes or misreporting on your credit reports from Equifax, Experian, or TransUnion. The credit reporting agency must investigate your dispute and they must correct or delete inaccurate, incomplete, or unverifiable information within 30-days.
The Federal Trade Commission (FTC) offers step-by-step instructions for disputing inaccurate information here. The FTC also offers a sample dispute letter you can use here.
Bankruptcy is a complex and nuanced area of law. To have your questions about bankruptcy in Georgia answered, come meet with us for a free consultation. We proudly serve the people of Savannah, Chatham County, Effingham County, Bulloch County, Bryan County, Liberty County, and Long County.
Call us today at (912) 351-9000 or contact us to schedule a free consultation.
The Law Office of Barbara B. Braziel has over 35-years of bankruptcy experience. We are the premier bankruptcy law firm in Savannah, GA and we practice exclusively in bankruptcy law. We invite you to get to know us here and read about the clients we’ve helped here.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.