Bankruptcy And Your Credit Report

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Bankruptcy can be a tricky process, especially if a consumer plans to continue payments on certain financial obligations. Therefore, understanding the full impact bankruptcy may have, including how it affects a consumer’s assets and credit report, may help them to avoid mistakes.

One consumer wrote into the advice column with concerns regarding his auto loan. The consumer told that he had filed for Chapter 7 bankruptcy, but did not include his auto loan in the filing because he planned to stay current on his payments. However, when his bankruptcy was discharged, he was surprised to find that the lender had included his loan in the Chapter 7, despite his consistent payment history, Bankrate reports.

It may come as a surprise to most individuals who file bankruptcy when the entirety of their assets are included in the filing, even those they attempt to leave out. However, most lenders require borrowers to sign a reaffirmation agreement if they file for bankruptcy but intend to continue payments and retain their vehicle, reports. The agreement is included in the bankruptcy file and outlines a borrower’s promise to repay some or all of the debt that would have been discharged in the bankruptcy without the contact. Failure to sign the agreement will prompt some lenders to stop reporting payments to credit bureaus or sending statements, the financial website said. In more serious instances, some lenders may consider failure to sign the agreement as a breach of contract and repossess the vehicle, said.

While some lenders may allow borrowers to retain their vehicle and continue making payments, there is no guarantee that the payments will be reported to credit bureaus following the bankruptcy. This means that even though the consumer has made timely payments and may receive the title to the vehicle, his or her credit report will not reflect the positive payment history, explains.

In some cases, bankruptcy may be the only option available for distressed Americans, but they should consider all their repayment and financial options before filing. Once a bankruptcy is filed, credit bureaus will immediately be notified and their credit report may suffer, even in the event that they change their minds. Credit counseling may educate debt-saddled consumers on their available options and measures to rebuild their credit standing.

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