A misconception homeowners as well as even some Real Estate Professionals have, is that if a homeowner goes through bankruptcy the mortgage is discharged along with all the homeowner's other debts.  The reason why homeowners who have gone through bankruptcy believe this, is because the mortgage is listed in the bankruptcy documents, and misinformation they receive from bad bankruptcy Attorneys. The truth is even though the mortgage is listed in the bankruptcy, it is NOT included in the debts which are discharged.  This means Mortgage Debt Is Still Owed After A Bankruptcy.

There are basically three reasons why homeowners believe their mortgage has been discharged in the bankruptcy along with their other debts.  I have already mentioned the first two:

• Misinformation from bad Bankruptcy Attorneys, and
• The mortgage is listed in the Bankruptcy documents.

The third is because the mortgage stops being reported by the Lender after the bankruptcy, and shows up on their credit report with a "0" balance after the bankruptcy is discharged.  As a result the homeowner believes the Attorney got everything discharged including the mortgage. 

What actually happens to the mortgage during a bankruptcy is this.  The mortgage has to be listed with all the other debts on the bankruptcy documents, however, it is not discharged as well as any government loans like student loans.  Unlike the other debts listed on the bankruptcy the Lender is only required to stop reporting the balance of the debt.  BUT the debt is not eliminated unless the homeowner sells the property, refinances the property, OR the Lender forecloses on the homeowner.  The Lender is prohibited by the court from reporting the balance on the debt, BUT the debt remains.

After the bankruptcy is discharged the Lender DOES still continue to send the homeowner monthly payment statements, which should indicate to the homeowner the the mortgage has not been eliminated.  But for some reason some homeowners think this payment is required because it is more like a rent allowing them to continue to stay in their home.

This can be confusing, and difficult to understand.  However, the confusion could be eliminated if:

• Attorneys did a better job of explaining to homeowners that even though the mortgage was listed in the bankruptcy documents, it is still owed, and their mortgage payments will continue, and
• The courts allowed the Lender to continue to report the mortgage after the discharge.  If the debts were allowed to be reported, the homeowners would not have the false sense they are no longer liable for the mortgage. 

Regardless of what a homeowner is told or not told at the time of a bankruptcy by their Attorney and Lender, the Mortgage Debt Is Still Owed After A Bankruptcy.   The full amount of the remaining mortgage balance, and will not be eliminated until the homeowner either sells the property, refinances the property, OR the Lender forecloses on the property.

 

 

***************************************************************************************************** 

 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com