Flash News Report – Foreclosure Rights Survive Bankruptcy – Full Story Below

In 2010, we filed a Chapter 7 bankruptcy for a client.  Among other assets, she owned a condominium that was burdened with a first and a second mortgage. She could no longer afford to pay both mortgage payments and the condominium assessments. As have many properties around he country, her condo had dropped a lot in value; it was not worth her while to keep it.

Her Chapter 7 went smoothly and she received her discharge.

I recently received the following email from this same client:

“Mr. Joseph Wrobel:

I received a summons in the mail on Dec. 23rd. I faxed it to your office so you could see exactly what it says. Is this just a formality or am I in more financial trouble?I assume since it’s a summons I do have to attend the court hearing on Feb 9. It says to contact the lender but I do not want the property so is there anything I should do now? This was filed by the second mortgage company. What are they going to do in court am I really going to have to pay the $198.00 filing fee and is there anything else they will make me pay. Thank you.”

This is a common scenario:  as part of the Chapter 7 process, many clients in our current economy
have decided that it is not worthwhile to retain the real estate that they own. They use the discharge that comes with the Chapter 7 to eliminate their legal obligation to pay their mortgages.

Often, at the time the Chapter 7 petition is filed, the mortgage company has not yet filed the foreclosure complaint. Clients are then surprised ( and often nervous ) when they later receive a summons to appear in foreclosure court. How can this happen? Understand that the Chapter 7 eliminates the ability of the mortgage lender to collect the debt. The debt was created by the “note” that was signed when the loan was taken out. However, the Chapter 7 does eliminate the rights that the mortgage lender has to foreclose. Those rights were created by the mortgage which is a lien against the property. Those rights survive the Chapter 7.

So how did I answer my client’s email?

You need not do anything. You need pay a filing fee, file an appearance or appear in court; you can ignore the whole thing. The foreclosure will run its course through the courts. Your bankruptcy protects you.

Don’t worry about it.

Happy New Year.