Threatening bankruptcy to mortgage servicer - What effects?

UnderwaterInLV

LoanSafe Member
Apr 12, 2012
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1
8
Las Vegas, NV
I've seen several videos on Youtube by attorneys, etc. who advocate "threatening bankruptcy" when trying to achieve a foreclosure alternative with a mortgage servicer. Off the top of my head, the only problem a bankruptcy would cause the servicer would be the inability to pursue the borrower for a deficiency judgment after foreclosure sale. What other positive effects for the borrower, and negative effects for the servicer does a bankruptcy have (other than the obvious, wiping out the mortgage debt obligation)? I should mention that I'm not interested in delaying or prolonging foreclosure.
 

UnderwaterInLV

LoanSafe Member
Apr 12, 2012
70
1
8
Las Vegas, NV
Tom, are you sure? I have a friend who told me as soon as he mentioned Bk while meeting with his lender, he said their whole attitude changed. I also saw a youtube video by a local attorney who was talking about short sale etc, and during the course of his talk, he made a statement about threatening bankruptcy, I suppose as just a tactic to make them bend..
 

Moe Bedard

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Essentially it is a delay tactic with a chapter 13, and can work in some Chapter 7 cases. A chapter 7 BK will take away your personal liability on the mortgage, but it won't save your home. This helps you in negotiating because once you have no personal liability, there is little to no recourse the lender can seek against you. Hence, they know you have little to lose after the 7 BK, but in the end, it will not be a guarantee to save your home.

Here is a good article on this by a lawyer:

Credit Reporting Of Mortgages After Bankruptcy

If you file for Chapter 7 bankruptcy and discharge your mortgage obligations, the creditor can report only that the balance due is $0 and the debt was discharged in bankruptcy.

The creditor cannot report a balance due, nor can it report any payments you make on the loan after bankruptcy. Doing so may violate the Fair Credit Reporting Act and subject the mortgage lender to legal liability.

This, in spite of the fact that you may well be paying the mortgage after bankruptcy.

This payment stream, however, won’t be reflected on your credit report after your bankruptcy discharge.

Can Reaffirmation Help?

One way of fixing the problem may be to reaffirm your mortgage loan through the bankruptcy process.

Reaffirmation is a side agreement between you and your lender whereby you agree to remain personally liable for repayment of the debt in spite of the bankruptcy filing. In essence, you are waiving the bankruptcy discharge as to this particular creditor.

Though this may at first blush look like a fix to the credit reporting problem, reaffirmation carries significant long-term risks. If you fall behind on your mortgage after bankruptcy, the lender may be able to sue you for the deficiency if the foreclosure doesn’t bring in enough money.

In addition, your late payments will be reported to the credit reporting agency if you fall behind again. This will only serve to lower your credit score – which is exactly the opposite of what you want to have happen after bankruptcy.​

http://www.loansafe.org/mortgage-credit-after-chapter-7-bankruptcy
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Aug 10, 2007
26,799
456
1,000
48
Southern California
www.loansafe.org
Correct and only through a chapter 7.