Keeping your house during a Chapter 7 bankruptcy is possible
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For those going through bankruptcy and trying desperately to hang onto their homes, it’s critically important that your payments are made on time and posted properly. If you are behind on your payments and have filed a Chapter 13 to reorganize your debts and get caught up, then your Trustee and mortgage company will likely be monitoring the payments closely. But if you are in Chapter 7, that may be another matter altogether.
Reaffirmation agreements are common with secured loans during bankruptcy such as car loans or furniture loans. Sometimes, as well, a reaffirmation agreement may be possible for a home mortgage but increasingly, mortgage lenders are declining to sign off on reaffirmation agreements with borrowers going through bankruptcy. As a result, you can be at risk if your mortgage company isn’t properly posting your payments.
Realistically, signing a reaffirmation agreement can be a real risk for you as a homeowner. The whole purpose of a bankruptcy is to get a financial fresh start. Many clients want to try and keep their homes, but sometimes it doesn’t work out. A Chapter 7 bankruptcy wipes out the debt of the mortgage but the lien on the property allows the mortgage lender to maintain their secured interest.
There are pros and cons to executing bankruptcy reaffirmation agreements
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However, if you don’t make payments and your home is foreclosed on, any difference between the mortgage balance and the amount the home sells for plus any fees and costs of foreclosure may be yours to shoulder. The reaffirmation agreement is you stating that you agree to be liable for the debt and strips away bankruptcy protections related to the mortgage.
But even if you are making all you payments on time, the lack of a reaffirmation agreement can create major problems for you in a Chapter 7. If you want to try and refinance your loan at a later date, you’ll have to be able to prove that you’re in good standing with your mortgage but what we see in some cases is that the mortgage company doesn’t properly report payments for those going through bankruptcy.
It’s important for two reasons – first is that on-time reported payments improve your credit rating and second is that it substantiates that you’re a consistent payer if you want to refinance. But what’s typical is that your mortgage will show on your credit report as “included in bankruptcy” even if you are still making payments. This also means that your mortgage lender won’t bother reporting your payments. You won’t have delinquencies showing but you also won't get any credit for making regular payments.
Self-reporting mortgage payments is wise after a Chapter 7 bankruptcy
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Your best hope is to self-report your payments which is also called “alternative credit reporting.” The main avenue for self-reporting your on-time payments is using a service like PRBC. They track payments and credit history for creditors not typically listed on your credit report including utilities, insurance and mortgage payments in a bankruptcy. Their service is free and may translate to a higher FICO score because FICO now examines PRBC records for its expanded credit score calculation.
If you are trying to keep your home during Chapter 7 bankruptcy, be sure to make your mortgage payments on time, keep records of your payment including cancelled checks, bank statements for auto-debit and any other financial records that substantiate that your payments have been made in full and promptly. If you are struggling with debt and want to find out how you can keep your home during bankruptcy, contact the law offices of John T Orcutt for assistance.