Am I still liable for my mortgage after chapter 7 bankruptcy? 4 Answers as of September 30, 2010

I filed Chapter 7 bankruptcy two years ago. I reaffirmed my mortgage loan. Since then all correspondence and phone calls with the mortgage company always includes them saying to me that my loan has been discharged and I am not required to make any payments, and that any payments I make are voluntary.

I did not think anything of it until recently we now wish we could let them have the house back. I talked to them about it and they assure me, over the phone, that all I have to do is tell them I am moving and that we do not want the house and then that is it.

My lawyer tells me no, I signed a reaffirmation agreement so I am still liable for the mortgage. The mortgage company says that yes, we signed an agreement and so did my lawyer and then they signed it. But no judge or court did, so it was discharged. Can you help me?

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The Orantes Law Firm
The Orantes Law Firm | Giovanni Orantes
Assuming that your house is in California, even if you reaffirmed your mortgage, if the house is your principal residence and the mortgage is the original mortgage on the house, the lender may still not be able to pursue you for any deficiency. If you refinanced the mortgage and reaffirmed it and your lawyer signed it, it does not need the Courts approval to be binding on you, which means that the lender can pursue you for a deficiency, if any. The lender is not obligated to go after you for the deficiency though. If it chooses not to try to recover the deficiency from you, then it is likely to send you a 1099 tax form to show that they canceled your debt. Debt cancellation is taxable by the IRS unless you can prove that you qualify under an exception bankruptcy is an exception, but since this is post-bankruptcy, you may need to show that you are insolvent now, for example. You should consult your tax professional about debt cancellation. There are many issues involved in your situation. So, the best approach is to try to contact an attorney who offers an initial free consultation, such as myself, to go over all your facts in person.
Answer Applies to: California
Replied: 9/30/2010
Sussman & Associates
Sussman & Associates | Mitchell Sussman
The key question here is whether the court approved the reaffirmation. A reaffirmation is not effective unless approved by the court. If the court did sign off on it then the discharge would NOT be effective as to the mortgage and under bankruptcy law you would still be liable.

With that said, if this is a first deed of trust, under Californias deficiency statutes there is no personal liability on a purchase money trust deed loans secured by personal residences.
Answer Applies to: California
Replied: 9/30/2010
The Law Office of Mark J. Markus
The Law Office of Mark J. Markus | Mark Markus
In order for a reaffirmation agreement to be binding it must be signed by both parties to the agreement, and filed with the bankruptcy court prior to your discharge being entered. If your attorney signed the certification on the agreement, and the above requirements were met, then it is a binding agreement. If your attorney did not sign the certification, then it would require approval by the court after a hearing in order to be binding. On the other hand, if the mortgage company is taking the position that the debt was discharged and there is no valid reaffirmation, then maybe you can get away with it, although that is obviously somewhat risky.
Answer Applies to: California
Replied: 9/30/2010
V U.S.A. Law Offices
V U.S.A. Law Offices | Michael Vu
Generally whether you are in chapter 7 or chapter 13 bankruptcy, the secured debts, i.e. mortgage loan or obligations, are not discharged unless you relinquish your home in Chapter 7 case. If you are in California, you can still let go of your residence, i.e. foreclosure, short sale, deed in lieu or abandonment, without having to pay the lender anything under the anti-deficiency statutes. With respect to any second or subsequent lenders, it is important to determine how the funds you obtained from these loans were used. If they were used to improve the residence, then nothing these lenders can do. However, if the funds are used for other purposes, you can still be protected if there is no judicial foreclosure or judgment.
Answer Applies to: California
Replied: 9/30/2010
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