As I’ve said before, finances and credit concerns can be even more difficult to deal with when the individual involved has financial ties to another person. For example, if a potential bankruptcy petitioner jointly owns a house or a car with someone else, there would be reasonable concern there for the other person’s credit score.
As in all cases of bankruptcy, you’ll need to list both the car and the house when you file. The lenders will be notified, but you will be able to keep both of them as long as you can continue to make payments. However, whether or not the lenders will continue to report the monthly payments on your partner’s credit report is a little more nebulous. It really depends on the lender in question. Some lenders have told me that they continue to report payments for the individual that has not filed for bankruptcy and others tell me the exact opposite. For those lenders that don’t report payments, it’s usually because it’s difficult for them to code the account differently in their system. It’s easier to just let the system flag the entire loan as “included in bankruptcy.”
In this situation, you’d need to reaffirm both the mortgage loan and the car loan, if you want to protect the other person’s credit. This agreement, with the backing of a bankruptcy court, states that you promise to repay all or some of the debt that otherwise would have been wiped away under bankruptcy. A car lender will send you the reaffirmation agreement soon after receiving the bankruptcy notification, however, you will have to request it from a mortgage lender, and even then some of them won’t give it to you.
Be informed before you make these agreements, as you’re basically signing up for the debt that bankruptcy would have otherwise cleared with the receipt of the discharge of debt once the bankruptcy is completed. If you or the other person in these loan contracts is unable to make payments, you will be liable for both loans after a repossession or foreclosure. While it’s admirable to want to protect the other in these situations, please don’t reaffirm a loan that you won’t be able to pay off, as that will put you both in a bad position. While I don’t want to sound like the Grinch, I’d be neglecting reality if I didn’t tell you that the end of the relationship is a possibility, and one you must consider. As always, make an informed decision.
If you have additional questions regarding bankruptcy and how it can affect a joint credit account or loan, please get in touch with the experienced southern California bankruptcy attorneys at Westgate Law.