Foreclosure Following Bankruptcy

Last updated on: May 24, 2022

Filing for bankruptcy can be a way for a struggling homeowner to get a fresh start.  Most of a filer’s debts are eliminated or at least made manageable following the close of a bankruptcy case.  However, in some cases, the person filing for bankruptcy can choose to hold on to some of the obligations, especially if he or she believes that the payments would be easier with all other eligible debt eliminated.

Reaffirmation is a process through which a person filing for bankruptcy takes responsibility for a debt obligation that would otherwise be discharged in bankruptcy.  For example, it is possible for a person to have mortgage debt discharged as part of the bankruptcy, meaning that the homeowner would no longer be responsible for making principal and interest payments on the mortgage loan.  However, if the homeowner reaffirms the debt, he or she keeps the mortgage and is responsible for the costs of the mortgage, and at the same amount as before unless he or she refinances.

However, reaffirmation has to happen with the lender’s permission, and sometimes the lender suggests it.  This means that the lender has to be willing to give the homeowner an opportunity to keep the house and make payments as initially agreed upon.  There is no requirement that the mortgage lender agree to reaffirmation.  However, if the homeowner was current on the mortgage before the bankruptcy filing, the lender is more likely to agree to a reaffirmation.  Whether the mortgage is reaffirmed or discharged, the lender still maintains a lien on the house until the mortgage debt is paid off.  Therefore, if the lender refuses to allow the reaffirmation, it can still proceed to foreclose on the home after the bankruptcy.

Foreclosure after a bankruptcy where the mortgage debt is discharged is possible because foreclosure is the process through which the lender would be able to regain possession of the home which is the collateral for the discharged mortgage.  Foreclosure can sometimes take a long time to be finalized.  Florida is a judicial foreclosure state, and therefore, in order to foreclose on a house, the lender has to go through a judicial process.  This wait time can be to the advantage of the homeowner who may be able to save the mortgage payments in anticipation of a move after the foreclosure is complete.

If the mortgage was discharged in the bankruptcy, the homeowner has an added protection in that the mortgage lender cannot pursue a deficiency judgment on the mortgage after foreclosure.  This is because after the bankruptcy with no reaffirmation, despite the fact that the house is still technically in the homeowner’s name, the homeowner does not owe the mortgage debt.

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There are various implications to staying in a home after not reaffirming the mortgage debt in a bankruptcy, and waiting through the foreclosure process.  These implications extend to credit reports and can affect a homeowner’s chances of being able to buy a home.  To discuss these implications and the foreclosure process with an experienced foreclosure defense attorney, contact the North Miami Charlip Law Group, L.C. today for help.

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