A trend is starting to emerge regarding a post- bankruptcy mortgage practice. In the recession, many mortgage companies adopted a different approach to re-affirming a mortgage in bankruptcy. Traditional thinking required the debtor to “re-affirm” his mortgage after bankruptcy so he could keep his house. In the recession, it became somewhat common for the mortgage company not to require re-affirmation. This actually helped the debtor because, if the debtor stumbled and fell later, they would not be personally liable on the mortgage. The mortgage company would simply look to its lien on the house.
A downside of this process is starting to show up. Mortgage companies who do not have their debt re-affirmed will not report payments made by the debtor after the bankruptcy. The debtor could go for several years making all their payments, being current on the mortgage, and then go to re-finance, only to find that the credit report shows no payment history.
We are starting to see that crop up. Therefore, if you are going through bankruptcy, you should weigh the options of being free from the debt vs. re-building of your credit. One solution to this problem is, in the course of the re-finance; produce your mortgage payments to prove you have kept your payments current even though they are not being reported. For further questions, contact Douglas Johnston, John Cowan orSophia Tippmann.