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Dear Bankruptcy Adviser,
I have recently filed bankruptcy, but I want to keep one of my lines of credit open. I have a balance due, but the
account is in good standing. My question is, if I do not reaffirm the debt but continue to make payments, will this
help to re-establish my credit?
-- Lee
Dear Lee,
It is possible to reaffirm debt that has been discharged in bankruptcy. This would be through a specific, court-approved
agreement. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all
or a portion of an otherwise dischargeable debt.
Reaffirmation agreements are common with car loans or other secured loans. It is also possible, but not
that common, with credit card debts held by credit unions. Credit unions have contacted me asking whether my clients
would like to reaffirm the debt in order to maintain their relationship. I provide my clients with the option and let
them decide whether the relationship is important enough to voluntarily agree to repay the balance on a debt that has
been eliminated in bankruptcy.
In your case, you did not reaffirm the debt but wish to continue paying. Typically, the lender will take
your money, but will not report the future payment history to the credit reporting agencies. You will make all the payments,
and get no benefit of that payment history.
You also should be wary about paying a creditor after your bankruptcy. I recently saw a case in which a
debtor filed bankruptcy, had the debt eliminated and then tried to keep a relationship with one of his prebankruptcy
creditors. Unlike in your case, this usually happens when a friend or family member is the lender. The debtor paid on
the debt or loan after the bankruptcy was over and missed one payment. Thinking that the debt had been eliminated and
the obligation to pay was a moral one only, he did not believe he had to pay the debt.
However, the debtor got sued, claimed that he did not reaffirm the debt therefore it was eliminated in
his bankruptcy. In California, our understanding is that the debt was eliminated -- even if the debtor did not list it
in the schedule of debts. The judge did not agree and gave the creditor a post-bankruptcy judgment on prebankruptcy debt.
The debtor appealed and lost. It appears he will have to pay this debt back.
The moral of the story is that you should be very careful about reaffirming, or paying debt after your
bankruptcy is over. You got your discharge; start working to rebuild your credit and stop worrying about past,
discharged debts.
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