Expert: Mark J. Markus- California Bankruptcy Attorney - 11/20/2008

Question
My husband and I filed chapter #7 two years ago. We signed to reaffirm our home. Now my husband is totally disabled and I have a fatal lung disease and have been given 1-2 years to live. The disease is cause by taking a diet drug and I have filed a law suit. We can not pay for the house any longer. Will we be held responsible for the balance due? Also if and when I settle with the drug company will they be able to come back and get the personal injury settlement. It will take around $300-$500 thousand per year to keep me alive. Thank You

Answer
I'm very sorry to hear about your situation.   You have my deepest sympathies.  Unfortunately, if you signed a reaffirmation agreement and it was filed with the court, you are obligated for any deficiency after a foreclosure.   That is why I NEVER advise my clients to do reaffirmation agrements.  (Besides which they are completely unnecessary for real property).   Anyway, there's always the possibility that the mortgage company won't seek a deficiency judgment and instead will issue a 1099 for forgiveness of debt income in which case you'll have a possible tax liability, but it will be significantly less than the full deficiency amount.  

If they do get a deficiency judgment, then yes they can come after part of thet personal injury settlement unless your state has exemptions laws which protect that.  In California it would be exempt.