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Bankruptcy, My Mortgage and My Credit Report

August 2, 2020 Bankruptcy

If I filed chapter 7 bankruptcy + my mortgage was discharged and I continue to make my monthly mortgage payments to the bank/lender, is the bank/lender required to report the monthly payments to the credit bureau?

The COVID-19 pandemic has devastated the economy, leaving nearly 1.4 million Floridians jobless since March 2020.  As a result, a substantial number of people have been unable to pay their bills, causing their credit scores to plummet and leaving them with negative credit reports.  In turn, lower credit scores make it difficult for consumers to find jobs, secure housing, and recover financially.  Although recent legislation like the Coronavirus Aid, Relief and Economic Security Act of March 2020 (the CARES ACT) has altered the Fair Credit Reporting Act to offer protections under very limited circumstances. It does not protect against creditors reporting late payments.

Many homeowners are wondering what steps they can take to stabilize their credit scores.  One important measure is to send monthly mortgage payments on time.  If homeowners file for Chapter 7 bankruptcy to discharge their mortgage liability, they should continue to make monthly mortgage payments to their lender.  That said, although lenders are permitted to accept discharged mortgage payments, those lenders are not required to report these discharged mortgage payments to the credit bureau because the borrower is no longer obligated to pay the remainder of the mortgage.  Therefore, many lenders fail to report payments to the credit bureau.

Many homeowners will continue paying their mortgages so as to continue living in their homes even after bankruptcy discharge.  The fact that homeowners file for bankruptcy does not mean that they want to leave their homes.  They could be filing for bankruptcy due to other debts.  In addition, after bankruptcy discharge, many lenders will allow homeowners to remain in their residences as long as they continue their mortgage payments.  That said, homeowners must usually “reaffirm” their mortgage debt if they wish to receive credit for making discharged mortgage payments.  “Reaffirming” a mortgage means that the homeowner must re-obligate themselves to the lender after the bankruptcy discharge.  Homeowners can reaffirm their mortgages by providing their lenders with a document indicating that they understand their renewed mortgage responsibility.  The reaffirmation document must be filed with the bankruptcy court before the homeowner’s bankruptcy case is closed and debts are discharged.  Most bankruptcy courts closely scrutinize the reaffirmation document to confirm that the reaffirmation will not impose any undue hardship on the homeowner and that the homeowner has the means to repay the reaffirmed mortgage.  If the reaffirmation document is approved, the lender, in its discretion, may agree to report the mortgage payments to the credit bureau after the homeowner requests so in writing. 

It is however, possible for homeowners who do not reaffirm their mortgages, to retain possession of their homes.   In the majority of cases, homeowners can stay in their homes as long as they continue paying their mortgage. The primary difference is that if homeowners do not reaffirm their mortgages, they are unlikely to receive credit for making these payments.  As a result, it is significantly more difficult for them to convince lenders to give them credit for the payments. 

If you are a homeowner and are considering filing for bankruptcy under Chapter 7, you should retain a knowledgeable bankruptcy attorney to make sure you understand your rights and responsibilities. For a free consultation with an experienced and skilled bankruptcy attorney, contact The Law Office of Carla Jones at (786) 378-8246.