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Philadelphia Bankruptcy Attorney Dan Mueller of Harborstone Law Group represents consumers in bankruptcy and debt negotiation matters throughout Philadelphia, Montgomery County, Delaware County, Chester County, and Bucks County in Pennsylvania.

The Bankruptcy Discharge And Beyond: What To Do After Your Bankruptcy

After Your Bankruptcy Discharge

You have received your bankruptcy discharge at the end of your Chapter 7 or Chapter 13 case. Congratulations! You are anxious to get a fresh start, but what should you do next? Here are a few steps you should take to rebuild your credit, ensure your financial future, and make sure you get the most from your new debt-free status:

YOUR BANKRUPTCY DOCUMENTS

Keep copies of your bankruptcy paperwork. It is important to keep copies of your bankruptcy petition, schedules, and order of discharge for your records. You can retrieve these documents from the court if you lose them. However, it may cost you and can be a bit of a hassle.

Why should I keep my paperwork? Although it does not happen every day, creditors have been known to try to collect on debts discharged in bankruptcy. As I tell my Philadelphia area bankruptcy clients, if any creditors attempt to collect after your bankruptcy, you can beat them into submission with the discharge. Moreover, as we will discuss below, you may need your paperwork to correct any issues with your credit report.

How long should I keep my bankruptcy documents? I advise my clients to keep copies of their petition, schedules, discharge, and related documents with their permanent records. (I provide clients with PDFs, which they can store and print as necessary.) You may need a certified copy of the case documents if you are applying for a professional license in some states. In that case, you can obtain a certified copy from the court through Pacer for a fee.

CREDITOR HARASSMENT AFTER DISCHARGE

What if a creditor tries to collect on a debt discharged in my bankruptcy? If a creditor or debt collector contacts you after your bankruptcy discharge to collect on a discharged debt, it is a serious violation of the Bankruptcy Code. It may also violate the federal Fair Debt Collection Practices Act (FDCPA), the Pennsylvania Fair Credit Extension Uniformity Act (PFCEUA), and other state and federal consumer protection laws. If a creditor contacts you, inform the creditor that the debt has been discharged in bankruptcy and give them your case number. If the creditor continues to contact you, let your attorney know. For a more in-depth discussion of creditor harassment during bankruptcy, see my post on the subject.

What if I forgot to list a debt in my bankruptcy? In most instances in this district, if you unintentionally fail to list an unsecured debt in a no-asset Chapter 7 case, the debt is still discharged. You do not have to reopen the case to add the debt. However, if you leave out a debt that is secured by property (e.g., a car loan, mortgage, etc.), it may not be discharged.

Likewise, if you forget to list a debt in Chapter 13 or in a Chapter 7 case where the trustee sold some of your assets, the debt may not be discharged. Regardless, if you believe you forgot to list a debt, you should ask your attorney about it.

CREDIT REPORTING AFTER DISCHARGE

Keeping track of your credit is a crucial step in rebuilding your credit profile. Here are answers to some common questions about credit reporting after bankruptcy:

When should I check my credit report? Check your credit report about three months after you receive your bankruptcy discharge. (It takes a while for the credit-reporting agencies to update your report.) You can get a free copy of your report once a year from each of the three major credit bureaus at www.annualcreditreport.com.

When will the bankruptcy drop off my credit report? A Chapter 7 bankruptcy typically shows on your credit report for ten years from the date that your bankruptcy case was filed, not the date of discharge. A Chapter 13 bankruptcy should drop off your report seven years from the date you filed your case. However, the impact of the bankruptcy on your credit rating will diminish over time, even while it is still on your credit report, as long as you work on rebuilding your credit.

How should my discharged debts be listed on my credit report? Every debt discharged in your bankruptcy should be noted as “discharged in bankruptcy,” or something similar, with a balance of $0 unless the debt was reaffirmed. If a debt does not show as discharged in bankruptcy, you can dispute the listing by sending a copy of your discharge to the credit-reporting agency along with the schedule (D, E, or F) that lists the debt.

What if I did not reaffirm a secured loan but continue to pay it? Many debtors keep property secured by a loan (typically a house or car) and continue to pay on the loan after bankruptcy without reaffirming the debt. If you did not reaffirm the debt during the bankruptcy, it should be listed as discharged, even if you are keeping the property and continuing to pay on the loan. Post-bankruptcy payments and delinquencies on such debts will not show on your credit report.

How will my reaffirmed debts be reported to the credit bureaus? In many bankruptcy cases, there are no reaffirmed debts. However, if you reaffirmed a debt, post-bankruptcy payments or missed payments should show on your credit report. The debt should be listed as if you had not filed for bankruptcy. Making these payments on time can help improve your credit rating, but any late payments will be listed on your report as well. (There are significant disadvantages to signing reaffirmation agreements, which you should discuss with your attorney.)

Quick Note: How do you know if you reaffirmed a debt? To reaffirm a debt, you must sign a reaffirmation agreement provided by the creditor, which is filed with the court and approved by the judge. If you are unsure if you reaffirmed a debt, ask your attorney. Reaffirmation agreements will be in your case file as well, which you can obtain from the court.

What if a creditor reports incorrect information on my credit report? If a creditor fails to report the discharged debt correctly or places any other false information on your credit report, it is a violation of the federal Fair Credit Reporting Act (FCRA). To sue under the FCRA, you must first dispute the debt with the credit bureaus. However, both the creditor and the credit bureaus could end up paying significant damages and your attorney’s fees, if the false information is not corrected. Speak to your attorney, if you find incorrect information on your credit report.

REBUILDING YOUR CREDIT AFTER BANKRUPTCY

To start rebuilding your credit, you must (1) get any non-dischargeable debts back on track, (2) start building a history of regular on-time monthly payments and responsible use of a credit account, and (3) avoid taking on unnecessary debt.

Make arrangements to pay any non-dischargeable debts. If you have non-dischargeable debts, such as student loans or certain taxes, you will need to contact the creditor to make arrangements to pay them. If you do not arrange to pay these debts, the creditors can begin collection action and can report delinquencies on your credit report.

Paying student loans. As to student loans, you should receive a forbearance for the time you were in Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, the loans would have been paid the same as other unsecured creditors but would also continue to accumulate interest. In either case, you need to make arrangements to get these loans back on track after bankruptcy. Fortunately, there are various programs to lessen the burden of federal student loan payments that are worth exploring to see whether you might qualify, including income-based repayment and occupation-related and public service loan forgiveness. Some private lenders have hardship programs of some kind. In any case, try to avoid deferments, as the accumulating interest may cause the debt to build to an unsustainable level.

Paying non-dischargeable taxes. Regarding non-dischargeable income taxes, contact the IRS, state revenue department (e.g., the Pennsylvania Department of Revenue), or the local taxing authority to make payment arrangements. (The IRS will typically accept a monthly payment of around 2 percent of the total.) However, if you have a substantial tax debt, you may need the assistance of an attorney to work out a settlement. If you can pay off these tax debts in a lump sum at some point, you will likely save substantial interest and fees.

Quick Note: If you discharged taxes in bankruptcy, and your tax statement does not reflect the amount discharged after a month or so, you might need to contact the taxing agency. (See my blog post on discharging income tax in bankruptcy.)

Consider using a secured credit card to help rebuild your credit. To begin rebuilding your credit, you may wish to obtain a secured credit card. A secured credit card uses money deposited in a bank account as collateral for the credit card. The creditor can take the money in the account only if you default. Some banks offering secured cards do not require a credit check, and it may be easier to obtain a card from them. However, be sure to shop around. Some secured card providers charge excessive fees and interest. Also, you should make sure the provider reports to all three credit reporting agencies (not all do).

Quick Note: A secured credit card is not the same thing as a prepaid credit card. Although very convenient and useful, pre-paid credit cards do nothing to improve your credit.

It is important to use no more than 10 to 20 percent of your available credit on your secured card (or any credit card). Thus, if you have a limit of $500, avoid carrying a balance of more than $100 on the card at any one time. The purpose of this card is to rebuild your credit, so responsible use is essential. I do not recommend getting multiple cards. If you are a couple, it is a good idea to have a separate card for each of you. However, one credit card should be enough for anyone.

Avoid unnecessary post-bankruptcy debt. In some instances, other post-bankruptcy loans and credit accounts may be available. However, avoid any credit that you do not need. Some post-bankruptcy debtors believe that the more accounts they open, the faster they will rebuild their credit. That mindset is a recipe for disaster. With few exceptions, debt is not your friend. (See below for information on vehicle loans and home loans after bankruptcy.)

Understand the income-to-debt ratio and debt-to-available-credit ratio. One reason debtors often see their credit rating rise after bankruptcy is the reduced income-to-debt ratio. In other words, the amount of debt that they have compared to their income is now much lower. The income-to-debt ratio is a significant factor in credit scoring. Therefore, you want to keep this ratio low. Just as important is the debt-to-available-credit ratio, which measures the percentage of debt you use compared to your available credit. Limiting your use of credit to about 10 to 20 percent of each account’s available credit will show that you are a responsible user of credit. Maxing out credit is a sure way to damage your credit rating.

CREDIT REPAIR

You may receive solicitations from “credit repair” companies. Credit repair is a scam, and the service they are selling is worthless. Although there is no quick fix when it comes to credit issues, you can rebuild your credit systematically over time.

YOUR HOUSE AND OTHER REAL PROPERTY AFTER BANKRUPTCY

Can I keep my house, if I did not reaffirm my mortgage? Yes, you can keep your house after your Chapter 7 discharge, if you are current on your payments and continue to make timely mortgage payments. (Chapter 13 does not discharge a mortgage unless the debtor surrendered the house.) If you did not reaffirm your home mortgage loans in Chapter 7 but plan to keep your property, just continue to make your house payments on time. The bank still has a lien on your home and can foreclose if you fall behind on the payments. However, as long as you are current, they will not foreclose. When you make your final mortgage payment, the bank’s lien will be removed, and you will own the home free and clear. Note, as mentioned above, if you did not reaffirm the debt, your payments (or  missed payments) will not be reported to the credit bureau.

Quick Note: Many mortgage lenders will not provide monthly statements or allow online access to your account after bankruptcy. (Some lenders will restart statements, but may require authorization from you or your attorney.) If your bank has stopped online access, you must mail your payment to the address specified by your bank. Even if the bank will send statements, it must provide your balance and a payment history, if you request them. If you are unable to obtain regular statements, you should request a payment history now and again to make sure your payments are properly credited.

Can I keep my house if I stop paying my second mortgage and just pay my first mortgage? The short answer is perhaps (assuming you did not reaffirm the debt), but you should speak to your attorney about strategy before taking any action. Second mortgage holders rarely foreclose, unless substantial equity covers the loan. (If a second or later mortgage holder forecloses, the first mortgage holder gets paid first, which generally means that the second mortgage holder will get less than its balance or even nothing.) For that reason, it is sometimes possible to negotiate a settlement with the lender holding the second mortgage for a fraction of the balance, particularly if the second mortgage has been unpaid for a long time. In some cases, second mortgage holders will forgive the loan entirely (typically after the guarantor has assumed the loan.)

Can I sell my house, if I did not reaffirm the mortgage? Yes, you still own the house after your bankruptcy discharge. Therefore, you can sell it. However, all mortgages and other liens must be paid from the proceeds of the sale. Any sale for less than the balance of the mortgage is a “short sale” that must be approved by the bank. (See below.)

Can I do a short sale or deed in lieu of foreclosure after bankruptcy? Yes, you can arrange a short sale or deed in lieu of foreclosure with the bank after your discharge. If the house is in foreclosure or is headed in that direction, and you wish to get out from under it quicker, a short sale or deed in lieu can be a good option. You can contact your bank for an application, but keep in mind that the bank is not obligated to give you these options. Note that if you did not reaffirm the debt and received your discharge, you do not have to pay taxes on any amount forgiven in the deed in lieu or short sale. (See tax section below.)

Can I obtain a mortgage modification after my discharge? Yes, most banks will offer a mortgage modification after a bankruptcy discharge, if you otherwise qualify. (A modification is a change to the terms of your current loan.) I have had many clients over the years who have obtained mortgage modifications after bankruptcy, primarily on loans they did not reaffirm. However, there are no guarantees, and you will have to go through the bank’s process.

Keep in mind that mortgage modification does not create a new loan. Therefore, as long as you did not reaffirm the loan during your bankruptcy, your liability is still discharged even if you later obtain a mortgage modification. A modification does not reaffirm a loan.

Quick Note: In most instances, modifying a loan that was not reaffirmed will not cause it to show on your credit report. However, if you refinance rather than modify your loan, the new loan should begin to show on your credit report.

Can I refinance my home after discharge? Yes, refinancing is often possible after bankruptcy but depends on several factors, including how well you have worked to rebuild your credit. (Refinancing replaces your current loan with a new loan.) The standards for refinancing are higher that for a modification. As such, it will typically take some time after bankruptcy to rebuild your credit to the point where refinancing is possible.

Quick Note: Some banks will not refinance a loan for a current customer if the homeowner did not sign a reaffirmation agreement. Therefore, in some circumstances, you may need to seek to refinance with another bank or look at a modification instead. Also, some programs, such as HARP, may not place as much emphasis on your credit rating and may be easier to obtain than standard refinancing.

Can I walk away from my home after my Chapter 7 bankruptcy? If you did not reaffirm your mortgage loan in Chapter 7, you have more options than if you reaffirmed the loan. (There is no reaffirmation in Chapter 13.) If you do not reaffirm your mortgage loan and decide at a later date that you no longer wish to keep your home, you can simply stop making the payments. Eventually, the property will go into foreclosure, but the bank will not be able to obtain a deficiency judgment against you. Note that Chapter 13 does not discharge your secured loans in most cases unless you surrender the property in your Chapter 13 plan.

Quick Note: Surrendering real property in bankruptcy does not give the property back to the bank or remove your name from the title. When you surrender a home in bankruptcy, you are informing the court and the creditor that you no longer wish to retain the property. Your liability for loans connected to surrendered property is discharged when you complete the bankruptcy and the judge signs the discharge order.  However, the property still has to go through the foreclosure process to remove your name from the title, unless you shorten the process by entering into a short sale or deed in lieu of foreclosure. The deed will be transferred to the new owner after the sheriff’s sale, short sale, or deed-in-lieu. This transfer typically takes several weeks after a sheriff’s sale.

Must I maintain a house that I surrendered in Chapter 7 or Chapter 13? If you surrendered a house in bankruptcy (or later decide to walk away from your home on which you did not reaffirm the loan), you are responsible for any post-filing homeowners association fees and for keeping the property up to code until the property transfers to a new owner. If the grass gets too high or trash piles up, you could be fined by your municipality. If you fail to pay the post-filing HOA fees, the association can try to collect them. Therefore, it is often best to live on the property for as long as possible, if practical.

Should I keep homeowners insurance on a house I surrendered in Chapter 7 or Chapter 13? If you surrender a home in bankruptcy or later walk away from the home, you still have potential liability for injuries to persons and other properties arising from your property until ownership transfers. If you stop paying for your homeowners insurance, the bank may purchase insurance on the property. However, such insurance typically covers the bank’s interest only. Therefore, you should consider keeping your policy in place until the deed transfers.

Quick Note: If you move out of the property before the deed transfers, keeping homeowners insurance on an empty house can be much more expensive than when you lived in it. Therefore, if you must move out before the foreclosure process is complete, you might want to consider renting the property. However, you would need to inform the renter that the house is in foreclosure and that notices will come to the house. Any lease would need to terminate upon the sale of the house. (You should be sure that your homeowner’s insurance policy will cover renters.)

YOUR VEHICLES AFTER BANKRUPTCY

Make timely payments, if keeping a vehicle. If you have a car loan that you did not reaffirm but you wish to keep the car, just continue to make timely payments. The lender retains a lien on your car and can repossess if you get behind on payments. If you did not reaffirm the loan, it is unlikely that your credit report will reflect your post-bankruptcy payments.

Can I return my car after bankruptcy? If you did not reaffirm your car loan and no longer wish to keep your vehicle, you can arrange to turn it over to the lender (a voluntary repossession). As long as you did not reaffirm the debt in your bankruptcy, the creditor cannot obtain a deficiency judgment. However, if you reaffirmed the loan in bankruptcy, the lender would be able to secure a deficiency judgment.

Can I get a car loan after bankruptcy? Yes, but first let me say that the best car is a paid-off car. Even if you are putting a couple of thousand dollars a year into maintaining an old car, it is still far less than the monthly cost of purchasing a car on credit. (Not to mention the increase in insurance rates that will likely accompany the purchase.) If you can pay in cash for your car, that is almost always the best option. I recommend avoiding vehicle loans unless there is no other choice.

That being said, if you need a car and cannot pay cash, financing a vehicle can help you rebuild your credit. Vehicle financing is often more available after bankruptcy than other types of credit, although you will need to shop around for a reasonable interest rate.

Quick Note: If you already have a car loan, avoid rolling the remainder of the current loan into another car loan. Rolling over an old loan is one of the worst financial mistakes someone can make when purchasing a car. It will result in both a larger balance and increased payments. Essentially, you are adding the remaining balance of your loan to the price of the new car. It’s a good deal for the dealer and bank, but a bad deal for you.

If you must buy a car on credit, keep your new car payment low. I cannot stress this point too much. A $500 or $600 a month car payment may become a millstone around your neck very quickly. Keep the payment at a level that you could afford even if you lost a substantial part of your income. Moreover, try to avoid loans that extend beyond 3 or 4 years. Consider whether you want to be making payments on a depreciating asset 5, 6, or 7 years from now.

Finally, buy used. New cars are a horrible investment. In fact, I cannot think of a good reason for an individual to buy a new car unless it is a business tax write-off. So, it is best to limit your purchase to an inexpensive used car.

POST-BANKRUPTCY TAXES

Debts Discharged in Bankruptcy Are NOT Taxable. I cannot emphasize this point enough. You do not have to pay taxes on debts discharged in bankruptcy, even if you receive a 1099C or 1099A form from the creditor.

What should I do if I receive a 1099C form after bankruptcy? Creditors file 1099C forms for debts that have been forgiven by the creditor or otherwise canceled. However, they should not file a 1099C for debts discharged in bankruptcy, unless the debt was for business or investment purposes. Regardless of the purpose of the debt, if it was discharged in bankruptcy, it is not taxable.

If you get a 1099C form, do not ignore it. If you receive a 1099C for a debt discharged in your bankruptcy, you will need to file IRS form Form 982 with your tax return to notify the IRS that the debt was discharged in bankruptcy.

Quick Note: Creditors often issue 1099C forms late (even years late). It is not all that unusual to receive a 1099C as much as two or three years after your discharge.  If you are unsure if creditors have filed 1099C forms, you can order a “wage and income transcript” with IRS form 4506-T.

What should I do if my mortgage lender issues a form 1099A during or after my bankruptcy? If you are surrendering real property in bankruptcy, you may receive a form 1099A form from your mortgage lender if (1) the property is vacant, and (2) the lender secured the property. However, the 1099A does not create taxable income, and you do not need to take any action in response to it.

Quick Note: If you sell your home or other secured property for a profit after your discharge, the gain may be taxable even if you did not reaffirm the underlying debt.

For more on post-bankruptcy tax issues, see my post on discharging taxes. If you are unsure about how to handle a 1099C or 1099A form, speak to an experienced CPA who understands that discharged debts are not taxable (not all do), or call your attorney.

PLANNING FOR A BETTER FINANCIAL FUTURE

Set up a savings plan. In other words, pay yourself first. Even if it is only a few dollars per pay period, try to put aside a little for emergencies (as well as fun things, like vacations) as soon as you are able. For many people who have been out of work or are otherwise financially devastated, it can be hard to imagine being able to save again. Still, a small amount can add up over the long run. Ideally, you should eventually save about six months of living expenses. However, having even a modest amount set aside in savings can help when the unexpected comes up. Arranging for this money to be transferred directly from your paycheck to your savings account, so you never see it, will make it easier to save.

Quick Note: If you have a savings plan, you can avoid one of the most destructive financial habits: using credit as an emergency fund. It is better to take a little money out of savings to replace the flat tire or the washing machine that died suddenly, than taking on new debt.

Contribute to a retirement plan. If you already have a 401k or other retirement plan, try to contribute as much to it as possible. At the very least, kick in as much as your employer matches. (An employer’s matched contribution is free money that you will lose by not contributing to the plan.) Of course, if you can max out your contributions, so much the better. However, as with general savings, even small contributions add up over time.

If you do not have an employer-based retirement plan (or you wish to save more), consider opening a no-fee or low-fee traditional or Roth IRA. Make regular contributions that come out of your account automatically on the day you are paid. As with other savings, the key to retirement savings is to set up the account  so you never see the money.

Update your will. Because your financial situation has changed, I recommend that you review your will to see if it needs revision. If you do not have a will, you may wish to have an attorney draft one. In my Philadelphia area bankruptcy practice, I am always happy to refer my clients to an estates attorney who can revise a will or write a new one at a minimal cost.

If you take care of these few items after your bankruptcy, you will be well on your way to a better financial future.

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71 comments to The Bankruptcy Discharge And Beyond: What To Do After Your Bankruptcy

  • Denise

    I was in Chapter and did not reaffirm my house loan. After paying on it for a couple of years they sold the loan to another lender. Is it still under the bankruptcy filing or will that sold loan count against my credit if I choose to leave the house?

    • Once a debt is discharged in bankruptcy, it is discharged for all time, regardless of who later purchases the debt. The creditor cannot report late payments on a discharged debt. However, if you stop payment, the house will eventually go into foreclosure. Although a foreclosure after bankruptcy discharge should not impact a debtor’s credit score directly, some creditors will not approve a loan until a certain number of years (usually two or three) have elapsed since the end of the foreclosure.

  • Sam

    Our bankruptcy was discharged in Jan 2016. Now we are refinancing our home and the new lender has requested a payoff amount 5 times, but again they refuse to comply and keep ignoring the request. We have called multiple times, but keep getting the runaround.

    Do we have any recourse? What can we do to make them release and give us a payoff amount?

    • Sam,

      Under federal regulations, the lender or servicer must provide a payoff amount within seven days of a written request. There are a few exceptions to the seven-day rule, such as foreclosure, bankruptcy, reverse mortgages, etc. However, even if the loan falls under an exception, the bank must provide the payoff within a reasonable period. You may want to have an attorney write a letter requestion the payoff and reminding the lender of its duties. In some cases, you may have a cause of action against the lender or servicer.

  • Carol

    Hello. My son filed bankruptcy about seven years ago. I would like to purchase a home with him. (I have excellent credit). Can he apply for a mortgage? He has been paying a car loan and several credit cards in a timely manner. What is the rule with mortgage lenders as far as time goes when applying for a loan after bankruptcy? Thank you for your help.

    • Carol. Most lenders require that at least two or three years have elapsed since a Chapter 7 discharge before considering an application for a new mortgage, but it depends on the bank and the underwriter’s policies. For example, the FHA and VA require the borrower to wait two years from the discharge. In Chapter 13 cases, the lenders tend to be a little more flexible.

      It sounds like your son has been doing the right thing in paying his bills promptly. Therefore, after this much time, the bankruptcy should not be a bar to obtaining a mortgage. However, whether any particular loan is approved is up to the bank. Lenders also consider income, credit use since the bankruptcy, income-to-debt ratio, income-to-available-credit ratio, etc.

      The one thing you mentioned that gives me some pause is that your son has several credit cards. Hopefully, he is keeping his overall debt load to a minimum and paying off the cards every month or two. As I mentioned in my post, it is important to use only a small portion of your available credit to keep your income-to-available-credit ratio very low and demonstrate financial responsibility.

      Finally, if you are purchasing the house with your son, your excellent credit may help you get a better rate. However, you should consider speaking to a financial adviser and perhaps a trust and estates attorney to make sure this transaction will benefit both of you in the long-run. As always, I recommend purchasing a home that is much less expensive than you can afford to avoid problems down the road should one of you suffer a loss of income or other financial problem. Good luck.

  • Amy

    What is the average time it takes to receive your discharge papers after you complete your Chapter 13?

    • The time between making your last payment and receiving your discharge varies quite a bit from case to case. However, I would count on waiting a minimum of three months. To avoid delay, be sure that any required pre-discharge forms (Certification of Domestic Support Obligation, Certificate of Debtor Education/Financial Management, Tax Forms, etc.) have been filed. Failure to file these forms will cause the case to be closed without discharge.

  • Tim

    Dan,

    Does reaffirmation of a mortgage or car loan only apply in a Chapter 7? I’m 46 months into a 60 month repayment plan under Chapter 13. A little worried, because I keep reading about this, but don’t remember discussing and/or signing anything having to do with reaffirming a debt. I lost representation, as my attorney was disbarred shortly after I filed. I am however, considering hiring an attorney prior to my discharge to review everything to ensure a full discharge.

    Tim

    • Tim,

      Reaffirmation applies to Chapter 7 only. You need not reaffirm debts in Chapter 13. Rather, a secured debt (such as a mortgage or car loan) continues after Chapter 13, unless you surrender the property during your Chapter 13. Keep in mind that you must be current on your payments to the secured creditors at the end of your plan, if you wish to retain the property. If you are not current, the creditor may decide to repossess the vehicle or foreclose on the real property.

      As to preparing for discharge, you should consult a local attorney. In Eastern Pennsylvania (and most districts), there are forms that must be filed before a discharge may be issued, including a certification of domestic support obligation and the financial management certificate. You must also be sure that you have made all plan payments and have submitted any financial information (such as tax forms) required by your plan. Failure to file the appropriate forms or make all plan payments may result in the court closing the case without discharge. If no discharge is issued, you would be liable for any debts remaining at the end of the plan plus accrued interest and fees. Should this happen, you could incur attorney’s fees to try to reopen the case and obtain your discharge, assuming that is possible.

      Dan

  • Mitzi

    Our chapter 7 bankruptcy was discharged on Aug 7th and I began to receive letters from auto dealerships saying we were preapproved for another auto but only have 60 days to take advantage of this. Is this their way to pressure us to buy a vehicle or is there really just a 60 day window to be able to do this? Thanks in advance.

    • Mitzi,

      If the seller is implying that there is some sort of 60-day window under the bankruptcy code in which to finance a vehicle, that is false. It sounds like is just the dealership’s attempt to pressure you into making a rash decision. When a seller tells you that you must agree to purchase something by a certain date, it often indicates that you are in for a very bad deal. Just because something is on sale, is no reason to buy it. Make purchases only when you absolutely need something, and then shop around extensively.

      Dan

  • Nick

    My bankruptcy was discharged in 2012. I never reaffirmed my car loan. Now it’s 2015, and they haven’t repossessed the car yet. (On my credit report it says that it’s closed and I was never late on payments, but derogatory.) Is the car mine or can they pick it up anytime?

    • Nick,

      I assume you mean that you stopped making payments, but the bank never repossessed the vehicle. Generally, unless the contract requires repossession within a certain period of time (unlikely), the lender has a right to repossess at any time. There is an argument that the lender has abandoned the vehicle, if it fails to repossess the a vehicle within a reasonable period of time. However, it is highly unlikely you would be able to obtain a title to the vehicle, unless the lender agrees to provide it. The lender is unlikely to do so, without a cash settlement of some kind. (I suggest consulting an attorney, if you decide to approach the creditor.) That being said, there is nothing preventing you from continuing to drive the vehicle.

      Note that if a debtor does not reaffirm the debt but continues to make payments until the debt is paid off, the lender must provide the title upon the final payment. (Some lenders require reaffirmation agreements as a condition of keeping the vehicle after discharge, but most do not.)

  • kim s

    I have a question i filed chapter 7 and as i was filing and before it was finale we started buying a car can i let it go back now on will they garnish my wages.

  • Sharon

    I surrendered my furniture. They picked up a dresser and went to my storage unit. I was late on my payment so I told them to come back that following weekend. It’s been 2 weeks, haven’t heard from them at all. Is it a time frame before they have to get it?

    • There is no specific time by which a creditor must repossess personal property surrendered in Chapter 7 in Pennsylvania. However, there is a legal argument that if the creditor does not repossess the item within a “reasonable” period of time, it has abandoned it and waived its rights. As a practical matter, creditors often choose not to repossess secured personal property after a Chapter 7 bankruptcy, unless it is fairly valuable. I see this frequently in the case of computers and other electronics, which retain little of their original value over time.

  • Nyree

    I filed Chapter 7 a few years ago and my home was not reaffirmed but I have since completed a modification. Does a modification serve as a reaffirmation agreement? Although they are not reporting my payments I am still liable for this debt?

    • Nyree,

      A modification on a mortgage loan after discharge does not serve as a reaffirmation agreement. (Only a reaffirmation agreement, reaffirms a debt.) A debtor’s personal liability for a non-reaffirmed mortgage loan is still discharged, even if the loan is later modified. If a debtor walks away from such a loan, the loan will go into foreclosure. However, the debtor does not have to worry about a deficiency judgment.

      However, if you refinance a home after receiving a discharge, rather than modifying an existing loan, personal liability attaches to the new loan. When you refinance a home, you are paying off the old loan with a new one, rather than simply modifying the terms of a current loan. For that reason, it is a new post-discharge debt.

  • Rebecca

    Hello,

    My husband and I filed Chapter 7 in 2009 but did not reaffirm the mortgage. We continued to make on time mortgage payments to our bank, which correctly reported the loan as discharged in bankruptcy on our credit report. They did not report our post-filing payments. Our bank sold our loan to another bank about 2 years ago. The new bank, started reporting my on-time payments and a balance. We are trying to sell, but do not believe we will have enough to cover the loan balance. Should I dispute the reporting of the loan with the mortgage company and/or the credit bureaus? Isn’t it illegal for the new bank to report that I have a balance?

    Thanks,

    Rebecca

    • Rebecca,

      Although the reporting of your on-time payments is beneficial to your credit rating, you are rightly concerned that negative information may be incorrectly reported to the credit bureaus, if you have to walk away from the house or resolve the issue with a short sale, deed-in-lieu, etc. You can dispute the new bank’s reporting with the credit bureaus. (As you did not reaffirm the loan, it should be reported as “discharged in bankruptcy” with a balance of $0.) False reporting violates the Fair Credit Reporting Act (“FCRA”). However, you may want to discuss with an attorney who handles FCRA claims to see whether you should do so now or wait to see if any negative information is reported down the line.

  • Nyree

    I filed for Chapter 7 and received a discharge. My home was included in the bankruptcy, and now I wish to sell the home. Although I did not reaffirm the loan, I have been making monthly payments on time each month in addition to property taxes. Can I sell the home and is it worth it or is it better to just walk away?

    • Nyree,

      You still own your home, even though you did not reaffirm the loan in Chapter 7. Therefore, you can keep it, sell it, rent it, etc. Whether you should walk away or sell, depends upon your goals and any number of factors, such as the following: (1) Is the home is under water? The mortgage and any other liens will have to be satisfied from the proceeds of the sale. As such, if the house is worth less than the loan plus cost of sale, you may net nothing for your troubles. (2) Do you need to get out from under the house sooner, rather than later. If you walk away from the house, the home will go into foreclosure, which can take quite a long time. By selling the house, either through a regular sale or short sale, you can get out from under it much sooner. (A deed-in-lieu is another option.) (3) Do you need a period of time to prepare for the move? By allowing the home to go into foreclosure, you will be able to live in the house until the sheriff’s sale essentially rent free. (Beware of homeowner association fees, which will continue to accumulate until the deed transfers. You cannot walk away from post-filing HOA fees.) I suggest that you consider these factors carefully and discuss the situation with your bankruptcy attorney.

  • Abbas

    I filed a chapter 7 bankruptcy and was discharged. I did not reaffirm my car which I still owed a balance. Fast forward 6 month after I was discharged, I crashed my car and my auto insurance did not cover me since my policy had expired the day before. I called the bank to inform them to pick up the car from the tow yard. As far as I know, the bank never picked up the car and the tow yard put a a lien on the car and sold it to someone else.

    The bank hasn’t contacted me since then, no phone calls or collection calls. I checked my credit report and my car loan is not on there. So my question is, do I still owe the bank any money? Or did the bankruptcy wipe out my auto loan away since I did not reaffirm?

    • If a debtor does not reaffirm a secured loan in Chapter 7, the debtor’s liability on the debt is discharged. Most auto lenders will allow the debtor to retain the vehicle as long as he or she continues to make payments and maintains insurance. However, the risk of loss is typically on the creditor if the vehicle is damaged and not covered by insurance. The creditor’s only recourse in such a case is repossession. If the vehicle is so badly damaged that it is not worthwhile to repair and sell, it may decide to abandon the vehicle.

  • Kim

    Our Chapter 13 bankruptcy had been discharged. Included in the bankruptcy was a RV. How do I go about getting title now that the discharge has been issued?

    • Assuming that the loan on the RV was paid off in the Chapter 13, you should be able to contact the creditor and request the title. A secured creditor must provide the title, once the debt is paid. However, if you did not pay off the loan in the Chapter 13, the creditor still has a lien on the vehicle and may retain the title until any balance is paid. Therefore, you would need to pay off the balance to receive the title.

  • Dana

    If I had to reaffirm a loan and couldnt afford the payments after bankruptcy can the bank file a judgment? (I was told that any loan open within 60 days of filing couldnt be included in the bankruptcy.)

    • Generally, if you reaffirm a loan in bankruptcy and later default, the creditor can take any action permitted under the law. Such remedies include filing suit against you and obtaining a judgment. When you reaffirm a debt, for that debt it is as if you never filed for bankruptcy. You have sixty days from the date of the reaffirmation or the date of discharge (whichever is later), to rescind the agreement by giving notice to the creditor. However, if the creditor agreed to a reaffirmation in lieu to resolve an objection, rescinding the agreement may give rise to some other legal action, depending upon how the matter was resolved. You should discuss this issue with your bankruptcy attorney.

      As to the second part of your question, loans opened shortly before filing (typically up to 90 days prior) are presumed to be taken in anticipation of bankruptcy and may be non-dischargeable. Likewise, cash advances taken on credit cards and credit card purchases for non-necessities within seventy days or so of filing may be non-dischargeable. The larger this type of debt, the more likely it is to draw a creditor’s objection to discharge. I typically advise clients to assume that that any such charges within 90 days of filing will be problematic. Moreover, some credit transactions (such as unusually large multiple cash advances) within six months to a year of bankruptcy may be suspect under some circumstances.

  • Tamera

    My Chapter 7 bankruptcy was discharged in 2012. I did not reaffirm my auto loan, on which I had less than a year to pay off at the time. I have since paid the truck off and have held title to it for 2 years. I’m in the process of trying to get preapproved to buy a home. Will the bank consider the fact that I actually paid off the auto loan even though it shows “included in bankruptcy” on my credit report? Is there any way I can use the payoff to assist me?

    • The disadvantages of reaffirming a debt in bankruptcy generally outweigh the advantages. However, when you do not reaffirm, payments on that debt are not reported to the credit bureaus. Perhaps an individual creditors will consider a post-bankruptcy payment history that the debtor obtained from the creditor. However, it would be better to concentrate on doing the things that will raise your credit rating over time, such as the responsible use of a secured credit card (never using more than 10% to 20% of the available credit, paying onetime each month, etc.). It takes a fair amount of time and effort to rebuild credit.

  • stephen

    I had a Chapter 7 bankruptcy and received a discharge. However a collection agency reported an open judgemnt on credit report a month after it was discharged! One credit agency deleted but two have not. I have disputed. How or what to do?

    • Stephen,

      I assume you mean a judgment that the creditor obtained before you filed for bankruptcy. In most cases, bankruptcy discharges the underlying debt but not the pre-bankruptcy judgment lien. Therefore, even though the debt may be listed as discharged in bankruptcy, the judgment may still show on your report. Additional steps are necessary to get rid of judgment liens either during the bankruptcy or after discharge, depending upon the case. If a debtor had no real property when he or she filed, the debtor may take the discharge and the schedule listing the debt to the clerk of the court where the judgment was entered and have it marked satisfied. However, if the debtor owned real property at the time of filing, the lien would remain on the real property after discharge, unless the debtor filed a motion in bankruptcy court and obtained an order avoiding the lien.

      As for disputing the debt, you can and should do so, supplying copies of the discharge and appropriate schedules as necessary. However, if the judgments were never marked satisfied or avoided, they may continue to pop up on your credit report for up to seven years.

  • Keith

    I have an auto loan question. If I file Chapter 7 and don’t reaffirm the car loan, but continue to make regular payments, I know that … the debt will show as “discharged through bankruptcy” or similar. My question is, as I continue to make the payments to keep the car, will the bank report the payments as being made, or they just won’t since the debt is discharged?

    Thanks!

    • Keith,

      Generally, if you do not reaffirm the loan, the bank will not report any post-filing payments to the credit bureaus. (Likewise, because the debt is discharged, the bank cannot report any late payments.) However, the advantage of not being on the hook for the loan, if there is a financial setback (or an issue with the vehicle), usually outweighs any credit benefit received by reaffirming the loan. For that reason, most debtors choose not to reaffirm auto loans.

      Regards,

      Dan

  • Rich

    My home was surrendered in a Chapter 13 and I have received a discharge. It is now showing … with the full balance due. How should the mortgage show on my credit report after discharge? And may it show a foreclosure, even if it was surrendered.

    Thanks

    • Rich,

      Generally, a home loan discharged in a bankruptcy should be listed “discharged in bankruptcy” or something similar. The foreclosure may or may not show up on the report (typically in the public records section). Whether a bank can report a post-dicharge foreclosure is a question that the courts have not fully answered. However, the important thing is to make sure the debt is listed as discharged. If it is not, you need to contact the credit bureaus to correct it.

      Dan

  • Jim

    I’m three months away from the end of my Chapt 13 case, and I was wondering what happened after I make my last payment? Is there another meeting or court date that I will have to attend?

    • Jim,

      In the Eastern District of Pennsylvania, there is no hearing to attend after completion of a Chapter 13 case. However, you must complete and sign a certification stating that you mades all plan payments, paid all domestic support obligations (if any), took the debtor education/financial management course, etc. Failure to complete and sign the certification in a timely manner will lead to dismissal of the case without discharge, even though the debtor made all plan payments.

      Dan

  • Leslie

    In 2007, I had car get repossessed. I never heard from the creditor prior to filing for Chapter 13, which I filed about a year after the repossession. I put car repo balance in Chapter 13. It has been more than five years since the repossession and a year since I was discharged, and I got a letter from the creditor saying I still owe them.

    • Leslie,

      You should speak to your bankruptcy attorney. I am assuming from your question that the creditor did not obtain a judgment prior to the bankruptcy. As long a dischargeable debt is properly listed, and the creditor is given notice of the Chapter 13 bankruptcy, any remaining balance on the debt would be discharged upon completion of the Chapter 13. Any attempt to collect such a debt is a violation of the discharge and could result in the creditor paying damages and attorney’s fees. It may also be a violation of the federal Fair Debt Collection Practices act or other consumer law.

      A problem could arise if the the creditor obtained a judgment prior to the debtor’s bankruptcy filing, particularly if the debtor owns real property or non-exempt personal property. The underlying debt is discharged, but any judgment lien remains. Judgments survive bankruptcy, unless avoided by filing a motion during the bankruptcy. (In a no-asset case, judgments are not generally a problem, as the debtor can simply take the discharge to the court where the judgment was issued and have it marked as satisfied.)

  • SHAWNISE HALL

    If I make timely payments on my auto loan after discharge but did not reaffirm the debt, can they take my car back any time?

    • Most auto lenders will permit you to keep a vehicle after bankruptcy without reaffirming the debt, as long as you remain current on the loan. However, there are a few auto lenders (Ford Motor Credit comes to mind) who require the debtor to sign a reaffirmation agreement in order to keep the vehicle. Also, some companies may have a different policy for leases than they do for loans. I make it a practice to contact the lender early in the bankruptcy process to determine the lender’s policy, so the debtor can make an informed decision about reaffirmation. Once you are discharged, reaffirmation is not an option.

      The major advantage of not reaffirming an auto loan is that you can walk away from the vehicle at anytime without fear of a deficiency judgment. For that reason, I generally advise clients not to reaffirm vehicle loans unless absolutely necessary.

  • Sunshyne

    If your case was discharged and a new creditor tries to collect from you, can you file that as well (even after your case being discharged)?

    • I assume by new creditor, you mean one that you did not list in your schedules. How to handle this issue depends upon the policy in district where you filed. In the Eastern District of Pennsylvania, if a debtor in a no-asset Chapter 7 case forgets to list a debt, the unlisted debt is still discharged (as long as the failure to list the debt was not intentional or for fraudulent purposes). The courts in such cases reason that there would have been nothing for the unlisted creditor even if the debtor had properly listed the debt. Therefore, it would be inefficient and wasteful to require the debtor to reopen the case to add the debt. In such cases, it may just be a matter of informing the debt collector of the bankruptcy. However, in other districts, the courts have held that unlisted debts are not discharged. Therefore, it is crucial to speak to your bankruptcy attorney about this matter.

      It is sometimes possible to reopen a bankruptcy to add a debt, as long the debt arose prior to the bankruptcy filing. If the debt arose after the bankruptcy filing, you cannot typically reopen the bankruptcy case to add it.

  • Sarah

    I filed for bankruptcy but did not sign a reaffirmation for my car loan. Prior to filing, I had never been late in 2 years. After the meeting of creditors, I noticed that on my credit report I had been reported 30 days late on payment.

    • The reporting of debts as delinquent should stop on the date of filing. In other words, debts that are late after filing should not be reported to the credit bureaus, unless the debtor reaffirms the debt (and the bankruptcy court approves the reaffirmation). However, creditors are not required to remove late payments reported to the bureaus prior to the debtor’s bankruptcy filing. Once a debtor receives the discharge, the debts should be reported as discharged in bankruptcy and show a balance of $0.

      It may take a while for the bankruptcy to catch up with the credit bureaus. Therefore, I generally recommend to clients to check their credit reports a few months after discharge and dispute any errors in writing to the credit bureaus and creditor. If the creditor or the credit bureau fail to correct any errors within a reasonable period of time, it may be a violations of the federal Fair Credit Reporting Act.

  • Niko

    My bankruptcy was discharged, and now I am getting married. My future husband wants to add me to his bank credit card. Will that hurt him in a long run? Thank you

    • Typically, adding an authorized user with a bankruptcy or other credit issues to a credit card account should not impact the credit rating of the credit card holder. However, a better option may be to obtain a secured credit card and start rebuilding your own credit.

      As an aside, I recommend that couples avoid joint credit card and other unsecured debt. Joint unsecured debt reduces the options a married couple has available to them, if they run into financial problems down the road. For example, Pennsylvania’s legal doctrine of tenancy by the entireties protects the joint property of a married couple from the individual creditors of one spouse. In addition, when there are few joint consumer debts, it is often possible for only one spouse to file for bankruptcy rather than both.

    • When you surrender real estate in bankruptcy and receive a discharge, your liability on the mortgage loan is eliminated. However, the bank retains its lien on the property and can foreclose. Although your credit report will state that the loan was discharged in bankruptcy and show a balance of $0, you do not own the home free and clear. Banks very rarely waive their liens (generally only in the case of a second mortgage that is 100% under water.) Unfortunately, lengthy foreclosures on surrendered property have become too common in recent years. Sometimes you can prompt the bank into action, but more often they work at their own pace.

  • Tracy

    Hello, one of the accounts I filed bankruptcy on is trying to go after the courtesy card holder (authorized user) on the account for the balance. The account was discharged in bankruptcy and the courtesy card holder did not give a Social Security number or signature on anything with the account. The account was sold to collection agency after discharged bankruptcy. Can this collection agency come after the courtesy card holder for balance?

    • Tracy,

      In Pennsylvania, an authorized user or courtesy card holder is not generally responsible for the credit card debt. However, creditors and debt collectors often pursue the authorized users, hoping that the authorized users are unaware that they bear no responsibility for the debt. The authorized user should speak to a debtor defense attorney about this matter before speaking to the creditor. To avoid confusion and credit reporting issues down the road, I usually advise my clients to remove authorized users from credit cards before filing for bankruptcy, unless the authorized user is a spouse filing jointly with the primary cardholder.

  • gerrika

    Does the trustee get your next year’s tax return [or refund], after you file bankruptcy?

    • Generally, in a Chapter 7 case, you do not have to provide the trustee with returns that become due after your bankruptcy discharge. For example, if you file for bankruptcy in 2014, you would have to provide the 2013 return (or 2012, if your meeting of creditors takes place early in the year). However, you would not have to provide the tax forms for the 2014, which would become due after the bankruptcy is discharged.

      Keep in mind that in Chapter 7 you have to exempt your potential tax refund for the next year. If you do not exempt the refund or otherwise deal with it in your schedules, the trustee would be entitled to take it. To exempt the refund, typically, you will base the estimate on the last refund and prorate it to the date of filing. For most people this is not a major issue, unless they run out of exemptions. If you had a large tax refund in the previous year, you should review your options with your attorney before filing for bankruptcy.

  • Margarita

    Can I receive a house as an inheritance/gift from my father after my chapter 13 bankruptcy discharge?

    • A debtor has a duty to report to the trustee any inheritance received within 180 days of the bankruptcy filing. In chapter 13, this is generally not an issue because, by the time of the discharge, far more than 180 days has elapsed. It is more of an issue in a Chapter 7 case. That being said, there are situations where an inheritance could be an issue following a Chapter 13. Therefore, you must discuss this matter with your bankruptcy attorney if an inheritance or large gift is a possibility.

  • Angie V

    If you turn a vehicle into the bank many months after receiving a bankruptcy discharge and did not reaffirm the loan …, will the bank report the “repossession” to credit bureau and will it be added to the credit report? Thank you!

    • By not reaffirming the loan, you have wisely given yourself more flexibility. A creditor cannot lawfully report negative information on a discharged debt. Therefore, a vehicle repossession should not appear on your credit report. (Likewise, any late payments on a non-reaffirmed debt should not be reported.) Rather, the debt should be listed as “discharged in bankruptcy” or something similar. If the creditor does report negative information, you may have a potential cause of action against the creditor. Of course, you should discuss this matter with your attorney, if you have any questions.

  • carrie

    Rather than purchasing a home right away can I do a “land contract” on a home once my chapter 13 has been discharged? We have rented a home from my parents while in chapter 13 and we are about to be discharged. we want to have more security that the home will be ours but don’t want to pay high interest rates or jump into anything to soon.

    • A land contract allows the buyer to live on real property while making payments to the seller. The seller retains title to the property until the buyer makes the last payment, at which point the seller transfers the deed. Land contracts can be useful in some circumstances, particularly when purchasing from trusted friends or family. Sometimes, a land contract may become available before a post-bankruptcy consumer can qualify for a standard mortgage. However, because they are an avenue most often taken by buyers without the ability to obtain bank financing, land contracts can be subject to abusive terms and high interest. In addition, the buyer’s payment history may or may not be reported to the credit reporting agencies. If not, such an arrangement may not help the buyer’s credit. You should certainly discuss any proposed land contract with an attorney before entering into it.

  • How soon can I buy a house after completing Chapter 13? What is the best route and steps to take. I’ve read that its better to wait 2 years after discharge.

    • In my experience, it takes at least two or three years before a debtor can qualify for a mortgage after a bankruptcy (assuming the debtor took active steps to rebuild his or her credit and otherwise qualifies for a loan). However, the actual time depends upon a number of factors, such as the banks policies, the policies of the underwriters, and the type of loan, etc. For example, the FHA and VA will not underwrite a loan until two years after the discharge.

      For most people with a bankruptcy discharge, it does not make sense to rush into a mortgage loan. Rather, the best approach is to (1) live modestly, (2) concentrate on rebuilding your credit, and (3) put back as much money as possible for a down payment. This approach will make it easier to obtain a reasonable home loan down the road. In the meantime, there is nothing wrong with renting.

  • My bankruptcy discharge was a year ago. I want to get another car, but the interest rate is high. How do I go about getting [a lower interest rate on a car loan].

  • sonja

    Hello. All of the above information was just what I needed for a fresh start,thank you. Now which is the better credit card to start with a low apr and interest.

    • I cannot recommend a specific secure credit card. However, you will want to shop around, as interest rates and fees vary greatly. Just be sure that the creditor reports to all three credit major reporting agencies and does not charge excessive fees. Some creditors have a minimum credit score required for their secured cards, but several do not.

      Dan

  • Jane

    You answered so many of my questions. Thank you. I just wondered if I need to keep the records of bills I owed. For example, do I need to keep the credit card statements and collection agency correspondence? Thanks again.

  • John

    Thank you. I have been looking in vain to find a basic plan on what I should do … when I am done with my Chapter 13. This is a good start!

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