Over the past few years we have worked with several clients that have continued to pay on their home mortgage and didn’t know why their credit hadn’t improved. Well, you must reaffirm your mortgage after filing bankrupt.
When you file bankruptcy and do not reaffirm your mortgage, your lender will report to the credit bureaus that it has also been discharged. When it is reported this way, it appears much like a credit card would be on a charged off account. Your lender will no longer be reporting to the credit agencies a negative or positive payment history on your account.
Most homeowners are unaware of this as they continue making mortgage payments, thinking that they are rebuilding a new credit history after bankruptcy.
When you do not reaffirm your mortgage obligation after bankruptcy, this means that you are not personally liable on the promissory note associated with your mortgage. Your home will remain under the original loan agreement as you resume making payments. The title does not change and you still own the home. You are just not personally liable.
Not reaffirming the mortgage after bankruptcy simply means that you are no longer personally liable for the mortgage. This can be great news for many BK filers who cannot be held personally liable if they were to walk away from their homes because they cannot be sued for any deficiency judgments.
Your credit report will note that the mortgage was discharged in bankruptcy and even though you are making payments, your report will not reflect your newly established good payment history. This is because you do not have to make payments and you are not utilizing credit. You might think you are actually rebuilding your credit score back up by paying your mortgage on time and paying period but you may not be gaining anything at all. When it comes to some people, they do not know this and years later when they want to take out a larger loan, they wonder why their credit score is still so low. They may even get denied for the loan because of the low credit score or lack of mortgage history.
However, if you do pay off your mortgage, you will still receive title to the home. Once the home is paid in full, the home is yours. Whether you reafirm your home loan or not.
After you file bankruptcy, you will have to make a choice to reaffirm your mortgage or not to reaffirm. Some homeowners will elect not to do this because they plan to walk away from their homes and do not want the personal liability hanging over their heads. While others who want to stay in thier homes with the benefits of good credit will most likely decide to reaffirm their mortgage.