Friends,

This comes up often. We have a lot of clients that have transitioned through a bankruptcy. Many of those clients actually had some debts, typically a mortgage ‘re-affirmed’. What does this mean? Well, I will give you the Wiki definition:

  A reaffirmation agreement in United States bankruptcy law refers to an agreement made between a creditor and the debtor that waives discharge of a debt that would otherwise be discharged in the pending bankruptcy proceeding.
– https://en.wikipedia.org/wiki/Reaffirmation_agreement

Basically, what this means is that you even though you included it in the bankruptcy, it was also re-affirmed at that time….So you are again responsible for that debt. 

Sounds a bit scary, and it is, but there is value in it if you can afford the payments. The most inherent advantage is that the creditor should continue to report the account in good standing as long as you are making payments. 

Unfortunately, many times they do not. Why? I don’t really know. I think the best answer is that the paperwork is lost, or never really paid attention to by the creditor. The results is that the account usually reports in the comments section of the credit report ‘included in bankruptcy, CH7 or something along those lines.  

Here’s an example:

Here’s how it looks when it is reporting accurate and re-affirmed. 
This client’s scores went up quite a bit once we got this to report correctly, which is a great reason to re-affirm debt, if you can afford it and commit to the payments. 

For folks who go through a bankruptcy, often times the biggest struggle is to begin to build credit again. However, if we have the benefit of a mortgage or auto loan that’s been re-affirmed, that process is much easier, and much faster. 

Something to consider. 

Be well, 

Credit Dr. ​​

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