Most bankruptcy debtors have home mortgages and motor vehicle loans. These debtors have pledged their homes, and their cars, as collateral for the loans.
Under the United States Bankruptcy Code the debtor has three options. The bankrupt can reaffirm the debt, meaning that the debt is not cancelled in the Chapter 7 Discharge. The bankrupt can redeem the asset, by paying its fair market value. Or the property is surrendered to the lender, which allows the bank to foreclose the mortgage, or repossess the vehicle.
Prior to the amendments in the Bankruptcy Abuse And Consumer Protection Act some courts allowed a fourth option. Bankruptcy debtors were permitted to elect to continue the loan payments without reaffirming the mortgage, or the vehicle loan. Then, in the event of a post-bankruptcy default on the loan, the bank could exercise its state law remedies, but the debt itself was cancelled in the Chapter 7 Discharge.
This fourth option is not permitted by the bankruptcy courts in Florida. The debtor’s refusal to reaffirm or redeem constitutes a loan default, allowing the bank to foreclose, or repossess, even if the loan payments are current. In addition, the borrower is precluded from defending the mortgage foreclosure case filed by the lender.
The Law Offices Of Todd S. Frankenthal represents bankruptcy clients throughout South Florida, including the following counties: Miami-Dade; Broward; Palm Beach; Martin; St. Lucie; and Indian River. Todd S. Frankenthal, Esq. advises clients suffering financial distress on bankruptcy and non-bankruptcy options.
