Mom's BK on credit report!

A friend of mine explained an unusual situation that she is in. I'm not sure what advice to give, so I thought that I would bounce off you good people.

My friend wants to sell her home and buy another in a better part of town. She went to a mortgage broker who pulled her credit report and discovered that she has a bankruptcy on her report. Because of that, he could not get her good mortgage terms.

Needless to say, my friend was in shock. She has never missed any payments on anything, nor declared bankruptcy. So she did some investigation.

Years ago she co-signed a mortgage for her mother. Her mother paid the mortgage every month and has never missed a payment or been late.

A couple of years ago after a dry spell in her business the mother declared bankruptcy. She had stopped paying the credit cards and other debts and managed to keep the house payments going. She did not tell her family that she had done this.

After the mother's bankruptcy, the mother managed to keep the house and the mortgage. Last month she sold the house and paid off the mortgage.

My friend disputed the bankrutpcy record with the CRA. The CRA responded that because she was jointly liable for the mortgage as a co-signer, she gets dinged this way.

I don't get it. She did not declare BK. The mortgage company was given every dollar on time at all times. Now it appears that my friend declared bankruptcy herself.

My friend doesn't know if it was a chapter 7 or chapter 13. Her mother refuses to discuss it. When she tries, the mother starts crying and telling her that she doesn't understand how difficult things were then and how much pressure she was placed under by creditors. Since she kept the house and all her equity, I suspect that it was a 13.

The mom did not use an attorney. She used a self help BK package.

Any thoughts?