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Bankruptcy Law/Accrual of interest on account after bankruptcy

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Expert: - 10/23/2008


Question
I have a line of credit that was never reaffirmed when we filed bankruptcy a few years ago. I know the bank has the right to foreclose on our property if they choose.  They refuse to remove me from my "bankrupt" status within the bank so that we could make some kind of repayment arrangement.  The loan keeps accruing interest although my credit report says I owe the bank a zero balance....can they do that?  I can not get any straight answers from the bank.  One person told me that my account was of a unsecured loan number but they do have a lien on my property.  The original loan was through Fleet but has since become Bank of America.  Can you please advise?


Answer

Leon Bayer Bankruptcy
This a very frustrating situation faced by many people. I think the real problem is that you were never given adequate advice about this issue before you filed the bankruptcy. You should have been told, (if you had a lawyer) that the bank does not have to make any new arraignment with you. They are entitled to stick to the original deal if they want to.

I assume this line of credit is secured by your home, and that you completed a Chapter 7. If so, you should have been told that you may need to decide between continuing to pay the loan, or else be prepared to walk away from the house.  

The Chapter 7 bankruptcy does not remove a mortgage from your home. It will continue to sit there and accrue interest and penalties. It makes no difference that the loan was transferred from one lender to another. Your credit report shows a "zero" balance because your bankruptcy discharged your "personal" liability for the debt, but the debt still remains enforceable against the property. They are entitled to do everything they are doing.

If you want to keep the property, you need to pay what is owed, unless the bank wants to negotiate some other arraignment with you. You can not force them to settle. It is possible the bank will not take any steps for commencing a foreclosure for many years. But if you ever go to sell or refi, the bank lien will show up on your title and you will have to pay it including interest and penalties. At some future point, let's say if the value of the property has risen very high, the bank may suddenly pop out of the woodwork and start foreclosing. They probably don't want to foreclose yet, because they will probably want to wait for the value to go back up so that it will be worth something when they repossess it.

Here is my suggestion: Try contacting a non profit mortgage counselor for help in negotiating some kind of payment settlement. The moral pressure from a non profit counselor may be sufficient to get someone at the bank with authority to make some decisions, and get this worked out with something that makes senses for all sides. I hope this works out real soon. Please let me know?

Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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