I had a client come in the other day who filed Chapter 7 two years ago. He stopped paying his mortgage when he filed. The bank still sends monthly statements which now indicate that he is roughly $30,000.00 in arrears. His house is still worth much less than what he owes on it. For whatever reason, the bank has not foreclosed upon his house and he still lives there.
He was very concerned that he is supposed to be making these mortgage payments. He is worried that if the bank forecloses, he is going to owe them money. Even worse, he has been turning down overtime at work for fear that his income may be “too high” if the bank were to come after him. He is even afraid to play the lottery out of fear that if he should win, the bank will take the money from him. Since all of this is the opposite of what I told him two years ago, I asked where all these concerns came from. Naturally, the answer was “friends”.
I warn my clients that they should be careful about who they take their legal advice from. I have found with people on the street that the less they know, the more they talk. Unfortunately, this is what happened to my client. People who obviously know nothing about bankruptcy have been telling him all kinds of things about it.
The fact of the matter is, my client has his discharge. Both his first mortgage and his home equity loan have been discharged. That means that he does not owe the bank any money. The bank does have the right to foreclose, but they have not even begun the process. I have found that banks are commonly allowing people to get two or even three years behind on the mortgage before foreclosing. However, the fact that the bank has not foreclosed, but continued to send statements, does not alter the fact that he does not owe the bank any money. When the bank finally does get around to foreclosing on the house, any deficiency will be the bank’s problem. It is not my client’s problem. Also, if my client should now hit the lottery and win $1,000,000.00, he still would not owe the bank any money. If he should suddenly start working serious overtime and make $100,000.00 a year, he still would not owe the bank any money. The whole point of bankruptcy is to “wipe the slate clean” and allow the Debtor to get a “fresh start”. If by going out and making money or saving money the Debtor would then resurrect all of the discharged debt, that would defeat the purpose of bankruptcy. Similarly, if banks could simply continue to send bills and exempt themselves from the bankruptcy discharge by refusing to exercise their other legal rights, that would defeat the purpose of bankruptcy as well. Obviously, Congress did not intend for such an opt out and did not allow for this in passing the Bankruptcy Code. I have advised my client that he has nothing to worry about where the bank is concerned. One day the bank will get around to foreclosing on his house, and one day there will be a deficiency. The bank will have to eat that deficiency. In the meantime, he gets to live rent and mortgage free in his house and he does not have to worry about what the bank will do. No matter how good his life gets from this point, the bank will have no remedy against him personally, no matter much money they lose on this house.