“Does Reaffirming My Car Loan Help My Credit Score?”
Ray and Theresa, who filed bankruptcy with me last fall, asked me that last week.
Lots of people ask that same question after they look at their after-bankruptcy credit report and see that their car payments don’t show. Then, they are told by their car finance company, “Your lawyer should have had you reaffirm your car. That way your payments would show and your credit score would be better.”
What’s the truth?
Does Reaffirming Your Car Loan Help Your Credit Score? A Top Bankruptcy Judge Wanted to Know
Last fall, Judge Margaret M. Mann asked that same question. She had a a stream of people in her courtroom reaffirming car loans and she wanted to know why. They told her it was to help their credit scores. So she asked–actually ordered–Wells Fargo to send their credit score expert and explain. What Judge Mann heard was this: Reaffirming the debt cannot be said to affirmatively help debtors rebuild their credit since the benefit is minimal at best.
In other words, reaffirming your car loan is hardly any help to your credit score–and that’s if you make the payments on time. (It you miss a payment–if the car needs a repair you can’t afford or gets totaled, or any of the things that can happen–then you drag your score way down with after-bankruptcy bad credit.)
The Judges in Alexandria Already Hated Reaffirming
As far as I can tell, Judge Mann is the only bankruptcy judge who has put in writing her opinion on reaffirming car loans. But she is the Chief Bankruptcy Judge in the Southern District of California, the busiest bankruptcy court in America. So you can bet bankruptcy judges around the country read what she said on this.
Even before that, the judges here in Alexandria VA made it clear they didn’t like reaffirmations. Now they like them even less. So–unless it’s Ford Motor Credit or your credit union–I will not agree to reaffirming your car loan. And even I did, the Judges here mostly won’t approve it.
Your After Bankruptcy Credit Report is Very Important
That’s one reason why its very important for everybody to check your credit score two or three months after bankruptcy.
When you do, you’ll see your after-bankruptcy car payments don’t show on your credit report. (The payments don’t show because after bankruptcy because you don’t have to make the car payment. The car still has to pay, but you don’t.) But even if those payments showed on your credit, the car payments would help your credit score hardly at all.
I have some tips on how to rebuild your credit here and here. As long as you need a car–and need that car–you should keep up the car payment. But filing bankruptcy means you don’t have to keep the car once you can get a better deal when your credit is better.
That’s why we don’t reaffirm car loans. Reaffirming your car loan doesn’t really help your credit if you. And if you get behind, it’s a disaster.
Stephen Dunne, a bankruptcy lawyer in Philadelphia, also has a helpful article on Judge Mann’s opinion.