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How debts are reported after Chapter 7 bankruptcy

Many Michigan consumers have questions regarding the aftereffects of filing for personal bankruptcy. While most recognize the many benefits of a Chapter 7 bankruptcy, it is understandable to have concerns about what their financial health and credit ratings will look like once the process is complete. While there can be no denying that bankruptcy will have a short-term negative impact on one's credit, the damage may not be as extensive as many believe.

For example, many consumers who are divorced but remain named on pre-existing home equity loans have questions regarding how bankruptcy will affect those debts. Unless the filer went through the process to reaffirm the debt, it was likely discharged through the bankruptcy process. That means that the borrower has no liability for the debt or obligation to repay that creditor.

In addition, the debt should be listed as 'discharged' on the consumer's credit report. Any future payments made on that account will not be listed or tabulated within the filer's credit score. However, it is important to understand that an individual's name cannot be removed from a loan that was taken out by a married couple unless the former spouse refinances. Therefore, if the former spouse fails to fulfill the loan obligation and the property goes into foreclosure, the foreclosure can be listed on the credit report of the person who filed for Chapter 7 bankruptcy.

For Michigan consumers who are considering filing for bankruptcy, this is just one example of a specific concern that should be addressed. Each individual or family will have their own unique financial scenarios, and should take the time to fully understand how a Chapter 7 bankruptcy filing will affect their overall outcome. Moving forward fully informed is always the best approach, and can help individuals take control of their financial futures and attain a fresh start.

Source: Fox Business, "Will HELOC Stay on Credit Report Post-Bankruptcy?" Justin Harelik, May 7, 2013

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