Discharged Mortgage Debt : After bankruptcy discharge what happens to debt

You may get into a debt trap if you let your debt build up. It may become too high for you to pay it off. This may compel you to file for bankruptcy. Getting bankrupt and filing for bankruptcy may sound embarrassing, but in reality, it is the best way to resolve the financial situation you find yourself in since it offers a number of benefits. What’s more, it also helps in getting your mortgage debt discharged.

What does it mean by discharged mortgage debt?

When you secure a discharge, you need not pay back the money to your creditors. The benefits you get depend upon the type of bankruptcy you have filed – Chapter 7 or Chapter 13.

For example, Chapter 7 helps to get rid of your unsecured debts . If you file Chapter 13, you will need to pay all your secured debts over a period of either three or five years.  Court will grant you a discharge once you complete the repayment.

There is a possibility of foreclosure after Chapter 7 discharge, in case you have not signed a reaffirmation agreement as part of Chapter 7 bankruptcy. This agreement binds you to repay all or a part of your debt that otherwise would have been discharged. You remain personally responsible for repaying the mortgage debt even after bankruptcy, directly to your creditors.

What if you default on mortgage payment after a discharge of the mortgage debt? Your creditors may opt for a foreclose. However, they cannot sue you to recover the deficiency.

You can protect yourself from foreclosure after Chapter 13 discharge, even if you overstep the time limitations and don’t secure a discharge under Chapter 13. This is possible if you schedule your current mortgage payments and any arrearage in a new Chapter 13. This will not only get you an automatic stay, but will also prevent foreclosure or any other collective action.

How much does it cost for mortgage to be discharged?

It is evident that your creditors hold the Certificate of Title, if you have mortgaged your property with them. However, if you are repaying your home loan or selling off your property or refinancing your home loan, you will need to complete a mortgage release or discharge form. Your creditor will also undertake a full credit assessment of your financial situation.

Once you receive a discharge of mortgage, you need not make further payments on the loan. A discharge mortgage debt in Chapter 7 came about because you either paid the mortgage loan in full or refinanced it or filed for bankruptcy.

The mortgage discharge process takes between 14 to 21 days. The cost for getting a discharge can set you back by $160 to $600. It may cost more, if you have a fixed loan and you refinance. The fixed break costs get added to the total cost.

Chapter 7 and Chapter 13 bankruptcy for discharging debts

 As already mentioned, your debt may get discharged through Chapter 7 or Chapter 13 bankruptcy, if you have completed all the requirements needed for your bankruptcy discharge. In Chapter 7 bankruptcy, your non-exempt assets are divided among your creditors. Court will discharge remaining debts if any. In Chapter 13 bankruptcy, on the other hand, you repay all or part of your debt within a time frame. After this, your remaining debt gets discharge.

Since court has discharged your debt, creditors can’t harass you or collect the loaned amount. Not only this, they will not be able to call you on phone, send letters to you or even sue you for the unpaid debt. However, what they can do is to enforce any liens attached to secured debts. They can sell any property attached to a lien, even if the associated debt has been discharged.

A Chapter 7 bankruptcy discharge may take about four months after you have filed your bankruptcy petition. In the case of Chapter 13, court will discharge the debt once you pay back all the payments. This may take three to five years.

What is a partial discharge of mortgage?

 If you have not repaid your full loan, but have more than one property secured by a loan and you decide to put up one of these properties as security, this is termed as a partial discharge.

How does a discharge process proceed?

On the discharge of your debts, a copy of the order is sent to all your creditors, the US trustee, the court-appointed trustee in your bankruptcy case and the trustee’s attorney. The notice warns the creditors not to attempt collection of debts. If they persist, they are liable to face punishment for contempt.

It is in your interest that you retain a copy of the discharge order along with all other bankruptcy paperwork. In case, any creditor attempts to collect money from you after the bankruptcy discharge, these papers will help you in dealing with this situation by filing a motion with the court and have the case reopened. The court, at its end, can fine the creditors, if it finds that they have violated the discharge injunction.

Can discharged debt be sold?

 Although your creditors are at liberty to sell discharged home mortgage debt, whoever buys it cannot collect on it. If your creditors report it inaccurately to the credit bureau, you must dispute it and mention that the debt was discharged in bankruptcy. The credit bureau will note it. You can take action if the credit reporting agency doesn’t note in properly. 

If the buyer of your discharged debt claims that you owe something, this constitutes a violation of the discharge injunction. It becomes a fit case for reopening your case and file a motion and claim contempt.

 Conclusion

 Discharged mortgage debt will not only save you from your creditors but also give you a structured repayment plan that you can adhere to without getting harassed in any way by those you owe money to. For this, you will need an experienced bankruptcy lawyer, who will guide you through the intricacies of bankruptcy and mortgage debts.

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