Reaffirmation Agreement Credit Reporting: What You Need to Know
When filing for bankruptcy, you may have the option to sign a reaffirmation agreement with one or more of your creditors. Essentially, a reaffirmation agreement allows you to keep the property secured by a particular debt, such as a car or a home mortgage, in exchange for agreeing to continue paying on that debt despite your bankruptcy filing.
But what happens to your credit score when you sign a reaffirmation agreement? Does it improve, or are you stuck with a negative mark on your credit report?
The answer is a bit complicated, but here’s what you need to know.
Reaffirmation Agreements and Credit Reporting
When you sign a reaffirmation agreement with a creditor, you are essentially taking on a new debt obligation. As such, the creditor will usually report your payments on the reaffirmed debt to the credit bureaus, just like any other credit account.
This can actually be a good thing for your credit score, especially if you’ve had past problems with that particular debt. By reaffirming the debt and making timely payments, you may be able to improve your credit score over time.
However, there is a downside to reaffirmation agreements when it comes to credit reporting. If you’ve already filed for bankruptcy, your credit score has likely taken a significant hit. Signing a reaffirmation agreement won’t undo that damage – in fact, it may even make your credit score drop further in the short term.
Additionally, if you miss payments on the reaffirmed debt, your credit score will suffer just as it would with any other delinquent account. And because you’ve already filed for bankruptcy, you don’t have the option to discharge the debt again in the future.
So, Should You Sign a Reaffirmation Agreement?
The decision to sign a reaffirmation agreement ultimately depends on your individual circumstances. If you need to keep the property secured by the debt and can afford the payments, signing the agreement may be your best option.
However, if the debt is a significant burden and you’re unsure whether you can keep up with the payments, it may be better to let the secured property go and start fresh with a clean slate. In that case, it may be wise to speak with a bankruptcy attorney to explore your options.
Final Thoughts
Reaffirmation agreements can be a useful tool for keeping your secured property and improving your credit score over time. However, they’re not the right choice for everyone, and it’s important to understand the potential impact on your credit report before signing on the dotted line.
As always, it’s best to consult with a trusted financial advisor or attorney to determine the best course of action for your individual situation.
