Keep partner’s credit safe from bankruptcy?


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Dear Bankruptcy Adviser,
Hi, I’m looking to file bankruptcy, but will it affect my partner’s credit? We own a house and car together. He does not live in the house we jointly own. He owns his own apartment in which he lives. He also has his own car. He has perfect credit and I don’t want to do anything to ruin it. But I could really use it to get out of my debt.
— Cindy

Dear Cindy,
That is a reasonable concern. You want to get out of debt, but you don’t want your financial missteps to impact another person, causing your partner to pay for your past.

However, when filing for bankruptcy, in all cases, you must list the car and the property when you file. The lenders will be notified that you filed bankruptcy, but you can keep the car and home as long as you continue to make payments.

The part that I can’t answer is whether or not the lenders will continue to report the monthly payments on your partner’s credit report. Because only you are filing bankruptcy, your partner should still receive credit for future payments.

I don’t have an exact answer to this question because lenders have given me mixed answers. Some lenders have told me that they continue to report payments for the non-filing individual and others have told me that they do not. The reason some lenders don’t is because it is difficult for them to code the account differently in their system. The lender receives the bankruptcy notation and the entire loan is flagged as “included in bankruptcy.” As a result, the lender doesn’t report future payments for either person.

Based on the facts given, you would need to reaffirm the mortgage loan and car loan to protect your partner’s credit. A reaffirmation agreement is a legally enforceable contract, filed with the bankruptcy court, which states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case.

Car lenders usually send out a reaffirmation agreement to you or your attorney soon after receiving the bankruptcy notification. You need to call the mortgage lender to request the agreement. Some mortgage lenders won’t provide them even if asked.

You need to make an informed decision before reaffirming these loans. Because the bankruptcy wipes out your responsibility to pay on the car and the mortgage, executing the reaffirmation agreement re-establishes that liability. If you or your partner is unable to make either the car loan payments or the mortgage payment, you may be liable for both loans after either a repossession or foreclosure.

I respect that you want to protect your partner, but you also must make sure you don’t put yourself into an even worse position. While I don’t want to be a cynic and say that you should not reaffirm the loan because most relationships end, I would not be giving you good advice without at least mentioning that possibility. Just make sure you make a well-informed final decision.

Good luck.

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