Taken By Surprise - A Discharged Secure Debt?

[kornellred]

I received my Chapter 13 discharge on 12/19/2012.

I have 7 months to go on a 72 month car loan, which I was paying outside of my Chapter 13 payment plan. I did not reaffirm the debt when I first filed for BK - I did not even know what reaffirmation was at the time.

I was checking my credit score a couple of days ago (I am closing on a house next month-another story entirely) and noticed, to my consternation - that my score had dropped by 20 points. The reason given for the drop in score is a zero balance owed on my car loan. Now this could not possibly be true, owing to the fact that I still have 7 more payment to make.

I called the lien holder and told them that they made a mistake. I was paying the loan down outside of the Chapter 13 plan payments. I was told that this makes no difference; the loan is part of the Chapter 13, and now that I have received a discharge, the balance of the loan is no longer collectable.

I asked the lien holder if I still owed any money on the loan. They said - yes, if you expect to obtain title to the vehicle you are driving.

I am in an automatic payment agreement situation with the lien holder, and they are going to continue to obtain payments from me until the loan is fully paid off. I am not sure if this is legal on their part if the debt has been discharged and was never reaffirmed. The damage to my credit score has been done, although it only matters to me inasmuch as I am in a home purchase deal via a pre-qualified VA mortgage obtained when my credit score was 20 points higher. The underwriters may have issues with this credit score development - I will find out in a few days.

I guess the point of my post is to alert Chapter 13 debtors who are paying down vehicle loans outside of the payment plan, and have not reaffirmed that debt, that the same thing might happen to them if they receive a discharge and payments remain on the vehicle loan.

[HHM]

I think we need to back up and address some of the incorrect assumptions in your story.

In both chapter 7 and chapter 13, secured debts remain secured debts (unless you do a cram down or lien strip as the case may be). Regardless if you pay the car payment inside or outside the plan, the debt is still included in the BK. If your plan was put together correctly (and if it was confirmed, I assume it was) it says something to the effect of "borrower will continue to pay the vehicle loan payments as agreed." Moreover, the lien against the car stays intact. So, to ultimately obtain the title to the car, you must PAY OFF the car. And as for credit reporting, that entry is correct. A discharged debt is supposed to reported as a zero balance. HOWEVER, that doesn't mean no money is owed. Your credit report is a report of your "personal" obligations. So, on a secured debt, what you discharge is the ability of you creditors to pursue you personally in the event you later default on the payments and there is a deficiency owed (e.g you owe $10K and the car is only wroth $5K).

Basically, what you described is EXACTLY what is SUPPOSED to happen, there should be NO surprise.

You paid the car payments outside the plan.
You received your discharge.
The credit report is correctly reporting the loan, zero balance due, included in bankruptcy.
If you want the title, you need to pay off the balance.
If you default and miss a payment, they can repo the car.

Sorry.

[sophieanne]

[QUOTE=HHM;591468]I think we need to back up and address some of the incorrect assumptions in your story.

HHM - may I ask you a question.
I'm in a chapter 13 - 5 year plan. I pay my mortgage on my own but I know it's included in the bankruptcy (shown as being paid by the borrower). Does this mean when the bankruptcy is discharged the mortgage will also show as discharged on my credit report even though I will continue paying it? Is there anything I can do to have it start reporting again (after the discharge)?

Thanks!

[HHM]

Guys, we are using the most misunderstood word on the internet with regards to bankruptcy "included." ALL debts are listed and addressed in a bankruptcy, that is what is meant by included and that is ALL that is meant by being "included". Your questions relate to what happens to the debt in bankruptcy. Is the debt discharged?

Sophieanne: mortgages are a little different. Mortgage debt is NOT discharged in chapter 13 BK unless you surrender the house in the BK. As such, after chapter 13 BK, it should report as normal.

[SMinGA2]

One other clarification:

Reaffirmation is an option under chapter 7, not chapter 13.

[HHM]

Correct, reaffirmation is only available as part of chapter 7, not 13.