debt

Which payments are you responsible for in bankruptcy?

Justin HarelikDear Bankruptcy Adviser,
I filed bankruptcy in 2009. The home I owned was discharged under the bankruptcy and not reaffirmed. I stayed in the home until early 2013 and continued to make the mortgage payment. I have since left the property but I have been receiving foreclosure letters from the mortgage. Can you please advise how this will affect me? Am I responsible for anything related to the house?
-- Shawn

Dear Shawn,
I am glad you did not reaffirm the mortgage loan. Even though you will lose the house, you will not be liable on the loan itself after you walk away. Making post-bankruptcy payments does not mean you re-establish your liability. You would either have to reaffirm or refinance the loan to re-establish liability eliminated in the bankruptcy.

However, there are other issues you might face along the way that you may have overlooked. Here is a breakdown of some other areas you should know about when you file bankruptcy and leave your home:

  • Credit report: Even though the bankruptcy eliminated your liability on the mortgage loan, a foreclosure will still be reported on your credit report.
  • Property taxes: You will not be responsible for property taxes. Generally, the lender will make sure that the property taxes are paid. If the lender does not pay those taxes, the county may sell the property to pay those unpaid property taxes. In the vast majority of cases, the lender makes sure to keep the taxes current to avoid this scenario. Regardless, you will not owe anything for the delinquent taxes.
  • Property insurance: The lender usually will pay for property insurance once you stop making monthly mortgage payments. I always tell my clients to confirm this information when walking away from the property. If neither you nor the lender is paying the property insurance, you may be liable for any property damage that occurs from the time you abandon the property until it is purchased by another party.
  • Property maintenance: Clients used to send me letters from the city stating that the client was obligated to maintain the property even after abandoning it; however, no client ever told me he or she was sued by the city. I also know cities were going after lenders to make the lender maintain the property until it was sold.
  • Homeowners association dues and assessments. This is a tricky one. You definitely want to continue to pay HOA dues and assessments until the property is officially out of your name. Any HOA dues and assessments that become due after the date of filing of your case are still your responsibility. My clients have been sued for outstanding balances owed years after filing bankruptcy.

Hopefully the lender forecloses quickly and you can reduce any potential risks. There is nothing worse than filing bankruptcy, losing your home and then being responsible for anything related to your former home.

Good luck.

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