Expert: Mark J. Markus- California Bankruptcy Attorney - 4/16/2009

Question
QUESTION: We live in the state of Iowa and filed joint, chapter 7 in 2004. The discharge was granted, without objection(s).
All debts including our primary residence was listed in the bankruptcy, and we did not reaffirm with any of our creditors. We did however choose to remain in our home and have paid the mortgage, as agreed until, February, 2009. In December, 2008, our primary income was lost. Our intention was to keep our home, however, this may not be possible if our situation remains unchanged. What is the liability in regard to our mortgage holder?

ANSWER: As long as you haven't refinanced or entered into a new loan agreement, the prior debt was discharged in your bankruptcy case and you have no further monetary obligation to the mortgage lender.

---------- FOLLOW-UP ----------

QUESTION: We did a loan modification in November of 2007, and because of recent circumstances, requested another in March, 2009. The bankruptcy department at our mortgage company is stating that because of the 2006 discharge, and because of not reaffirming with them, that they may resist doing another modification because we (the borrowers) have no liability in regard to the mortgage contract. In your opinion what does this mean in terms of liability?

Answer
That is really an unsettled area of law and is going to vary from court to court.  The mortgage company could argue that the modification is a NEW loan and therefore not part of your bankruptcy case and, depending on the laws of your state, you may be liable for a deficiency judgment after foreclosure.  On the other hand, there is authority for the concept that the modification is simply that....a modification of the prior loan, and that it is still the same loan that was discharged in your bankruptcy case.   That one doesn't make as much sense to me because you are essentially making voluntary payments on the loan anyway.

I suggest that you contact an attorney in the area where your case was filed because a lot of this is going to depend on local laws, custom and practice.









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