Filing bankruptcy can affect anyone else who shares in a listed asset. You should consider this carefully before you decide to file for bankruptcy. You’ll want to do what you can to protect your partner’s good credit from the effects of your bankruptcy.
The car and house must be listed when you file for bankruptcy. Your car and home can remain in your possession if you continue to make your payments (though the lenders will be notified of your bankruptcy filing). It is not guaranteed that your partner (co-owner) will continue to receive credit for the payments because it is up to the lenders to make that report.
Some lenders do continue to report payments for the non-filing individual while other lenders do not. Evidently some lenders have difficulty in coding the account in their system. When some lenders receive the notification of bankruptcy, the entire loan is immediately flagged as “included in bankruptcy” and there is no notation that only one person is filing. Thus, no payments are reported for either person.
In order to protect your partner’s credit, a reaffirmation agreement will need to be filed with the bankruptcy court on both the car loan and the mortgage loan. This is a legally enforceable contract that gives your promise to repay all or part of the car loan and home loan. The filing of the reaffirmation agreement means that the loans will not be discharged in the bankruptcy. (Please note: Not all relationships will last forever…think about this before making any final decisions on this issue).
A request must be made to the mortgage lender for the reaffirmation agreement. Unfortunately, some mortgage lenders may refuse to provide the agreement, even when it is requested. Most car lenders will provide you or your bankruptcy attorney with the reaffirmation contract after receiving the bankruptcy notification.
Make this decision in regard to the reaffirmation agreement very carefully. Your bankruptcy discharges your debt and could include your car and home, relieving you of your responsibility to pay off the loans. The reaffirmation agreement again establishes your liability for the specified loans. Should you or your partner be unable to make the payments in the future, you will both be faced with repossession or foreclosure.
For answers to more questions about reaffirmation of loans in bankruptcy or the bankruptcy process in general, get in touch with the southern California bankruptcy attorneys at Westgate Law.