You filed bankruptcy, your debts are discharged, your case is closed, and now it’s time to rebuild your credit. So, a few months after your bankruptcy closes, you check your credit report and notice that your mortgage company is not reporting your on-time payments to the credit bureaus. What’s the deal?
It’s important to understand that the Fair Credit Reporting Act (FCRA) does not require any creditor to report to the national credit reporting companies.Creditors can choose to report to one, two or all three of them, or not report your accounts at all.
It is common that after bankruptcy, mortgage lenders choose to not report the on-time payments to any of the credit bureaus. If you call them and ask them why they will tell you it is because you did not reaffirm the loan. However, that answer doesn’t really tell the whole story.
Most mortgage lenders operate in many states across the country. So, lenders have one policy for all states, and that is to try to get you to reaffirm your mortgage.
But, each state has different anti-deficiency laws. These are the laws which determine what you may owe to your lender in the event of a foreclosure of your property. Arizona’s anti-deficiency laws are quite good. In most circumstances they will protect you from any liability on the loan that was used to purchase the property.
So, what happens if you try to reaffirm a loan where you actually don’t have personal liability in the first place? Some Arizona bankruptcy judges have refused to sign the reaffirmation agreement to make it official. This is because it essentially has no effect.
Now, if you have a loan that was not used to purchase the house, but was taken out later for some other use, then you really don’t want to reaffirm that loan because it would bring back the personal liability that you discharged in your bankruptcy.
Therefore, we rarely seek to reaffirm a mortgage in bankruptcy because on a purchase-money loan it would have no effect and probably wouldn’t be approved by the court and on a non-purchase-money loan it would be a really bad idea to reaffirm. We understand that having the credit reporting would be nice, but you can quickly rebuild your credit with other positive accounts. And, of course, if you ever refinance your house or sell it and purchase a new home, then you will have a new lender that will likely report your on-time payments.