Bankruptcy Affects on Mortgage Credit Bureau Reporting

How Credit Bureaus report a bankruptcy with a non-reaffirmed mortgage

Credit Bureau Reporting after Bankruptcy if you did not re-affirm.

Why are my payment not showing up or being reported to the Credit bureau after I filed Bankruptcy?

If you filed bankruptcy, your mortgage bank must stop taking any automatic payments and “attempting to collect a debt” during the bankruptcy. Since bankruptcy legally discharges your responsibility to re-pay the mortgage loan, the mortgage bank will also usually stop sending you statements and stop reporting payments to the credit bureau because you legally do not owe the payments once you have received a discharge. The Mortgage Bank or Lender will start reporting payments and list your loan on the credit bureaus if you re-affirm your mortgage debt, meaning you re-affirm or re-obligate yourself to the debt owed to the bank after your bankruptcy. These agreements must be filed with the court and accepted before entry of the Discharge Order which occurs 60 days after the initial 341 meeting in a chapter 7 bankruptcy.

Why would the bank continue to accept or take payments and not give you credit for them?

The bank still has a lien on the house even though you legally have been discharged from paying the loan. Each payment you make reduces the lien amount the bank holds on the house and eventually will satisfy the mortgage when it is paid off. However, since you legally don’t owe the money, many bank’s positions are that the homeowner, debtor does not owe the money and therefore gets no recognition or credit for making payments it does not owe. The mortgage bank’s lien rights in the house are only allowed up to the amount they are legally owed so each payment reduces the lien rights but may not be reported to the credit burea.

Can I get my payments reported to the credit bureau if I did not re-affirm? 

Some banks will start reporting to the credit bureaus again if the debtor requests this in writing. It must be sent to the specific bank holding your mortgage loan and it is up to the bank if they offer this because they legally do not have to report a debt that you no longer owe. See How filing Bankruptcy affects your mortgage loan.

Why don’t mortgage banks or lenders report to the Credit Bureaus if you did not re-affirm a mortgage loan?

When a debtor filed bankruptcy and received their discharge, bank's were abandoning the debt but not reporting it as charged off or satisfied with the credit bureau. For many borrowers, the credit report is the difference between getting a job and being turned down or the ability to get a new loan.

These debts still appeared on credit reports despite having been legally eliminated in bankruptcy. These are called zombie debt and many debtors felt forced to pay debts that they worked hard to discharge in bankruptcy just to get them off the credit report.

Lawsuits were filed with the largest banks regarding this practice of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms effectively holding borrowers' credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.

As part of the solution to this problem, banks would ensure that all debts discharged in Chapter 7 bankruptcy were correctly recorded. Therefore, mortgage loans that are not reaffirmed are also removed to protect the debtor from a credit report that shows debt they no longer legally owe. 

What if a creditor reports incorrect information on my credit report? 

If a creditor fails to report the discharged debt correctly or places any other false information on your credit report, it is a violation of the federal Fair Credit Reporting Act (FCRA). To sue under the FCRA, you must first dispute the debt with the credit bureaus. However, both the creditor and the credit bureaus could end up paying significant damages and your attorney’s fees, if the false information is not corrected. Speak to your attorney, if you find incorrect information on your credit report.

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