Who Can Collect on My Home Loans Post-Bankruptcy?
After filing for Chapter 7 bankruptcy, you receive a discharge of debt. Many who do so, continue to pay their mortgage payments (and second mortgage payments) even though they did not reaffirm the debt during their bankruptcy. This means that they did not agree to continue paying according to the terms of the original loan. It also means that the lender has no right to sue for payment. So why do people continue to pay their mortgage and second mortgage payments? Who can collect on my home loans post-bankruptcy?
When a borrower receives a mortgage loan (both first and second mortgage loans), the lender places a lien against the house for each loan. In order to own the home free and clear, they loan shave to be paid. Successfully filing for bankruptcy eliminates the lenders’ ability to sue you for non-payment, but it does not remove the liens from the property. In order for the liens to be removed from the property, the loans must be paid.
In some cases, the lender could write off the second mortgage’s balance. In other cases, they could sell the note to another company. If the loan balance is sold, the lien is still attached to the home and the new company holding the note also holds the lien. The company still cannot sue for payment due to the Chapter 7 discharge of debt, but they can foreclose on the property if you fail to make monthly payments.
One potential benefit of having the loan balance sold to a new company is that they often purchase the debt at a discount. In some instances, they purchase the debt for as little as 10% of the outstanding balance. This means you have some negotiating power. In many instances, consumers are successful in contacting the new note holder regarding reduced monthly payments or settling on the loan balance. Doing so would remove the lien from your property AND eliminate the remaining balance.
If you need additional assistance managing your post-bankruptcy issues, contact the bankruptcy lawyers at southern California’s Westgate Law.