Listed below you will find answers
to the questions my former bankruptcy clients asked most frequently after their bankrupty discharge. The answers were based
on the law as of 2017 and cover these topics:
(1) mortgage reaffirmation,
(2) credit reporting of mortgages,
(3) student loans,
(4) old debt included in the bankruptcy that someone is trying to collect,
(5) dealing with
the IRS if a creditor sends a 1099,
(6) credit reports,
(8) judgment liens and real estate
Bankruptcy client files were kept for at least four years after the case closed and were then
shredded. All remaining client files will be shredded and discarded in 2021. Information about your case is available
through PACER, the federal court system's online database. Any bank, mortgage company or lawyer should have a PACER account
and can easily get information about your case and any filed documents.
(1) Why did I not reaffirm
my clients' mortgage company will tell them that they should have done what is called a "reaffirmation" in their
Chapter 7 bankruptcy. In fact, people can keep their homes and continue paying their mortgages after bankruptcy
whether the mortgage is reaffirmed or not. A reaffirmation is a procedure that benefits the mortgage company and is
rarely in the homeowner's interest. What it does is reinstate the mortgage so that the homeowner becomes liable
for the mortgage debt in spite of the bankruptcy even if they lose the home in foreclosure. Because reaffirmation
is almost never a good idea for the homeowner, the bankruptcy judges in the Middle District of North Carolina will hold
a court hearing if someone tries to reaffirm a mortgage. In most cases the judges here would disallow the reaffirmation.
In some other bankruptcy courts outside North Carolina, it is more common for judges to allow a reaffirmation even if
it is not in the homeowner's interest, and some mortgage companies in these other states mistakenly think that reaffirmation
of the mortgage is required. In fact, reaffirmation is not required and is not even allowed by our local bankruptcy
judges, except in extremely rare cases. I can recall only two cases of mine where we reaffirmed a mortgage in the
last 20 years. In these cases the mortgage company drastically reduced the interest rate and the outstanding balance,
and so it made sense for those two clients to reaffirm the new deal. For everyone else I represented, the mortgage
companies refused to offer a better deal and so there was no reason to reaffirm.
chief judge of the Middle District Bankruptcy Court published an opinion in 2006 explaining why our court does not approve
mortgage reaffirmations. The case is In re Bennett (Case No. 06-80241) 05/26/2006 and can be read by clicking on the case name. If the link doesn't work, the Bennett opinion
can be found by going to the Middle District website, www.ncmb.uscourts.gov and clicking on "Opinions."
(2) Why doesn't my mortgage show on my credit report?
Because mortgages are not reaffirmed in bankruptcy cases filed in Greensboro or Winston-Salem, the banks or
mortgage companies are not required to report the mortgage to the credit bureau. If you filed Chapter 7 bankruptcy,
your personal obligation to pay the mortgage debt is discharged in bankruptcy just like your credit cards and other debt.
The reason you are paying the mortgage is to keep the house.
(3) Were my student loans affected by
people could file Chapter 13 bankruptcy, pay as much as they could afford toward their student loans in a five-year plan
and get a discharge of the remaining balance at the end of the case. After 1990 it has been almost impossible to
relieve government-guaranteed student loan obligations through bankruptcy. From 1990 onward, the judges in the Middle
District of North Carolina used the so-called Brunner test. Between 1990 and 2005 only one of my clients was able
to get a discharge of his student loan. After the law was made even worse in 2005 I had no clients who were
able to discharge their student loans using the Brunner test. However, this legal situation may change, so you should
consult a new lawyer to see if anything can be done about your student loans.
(4) What if a creditor tries to collect
a debt included in my Chapter 7 Bankruptcy?
If you get a collection
letter, contact a new lawyer to find out if you are entitled to money damages from the creditor or collection agency.
If someone calls you, give them your bankruptcy case number and try to get their name and address.
Some companies buy bad debt and try to collect it. If the debt was included in your bankruptcy, it is still
discharged even if a debt buyer now owns the right to collect it.
If someone demands money
immediately or asks for your bank account or credit card number, you are probably dealing with a scam artist. Some
criminals have been known to get public bankruptcy records and use the information to scam people out of money.
Some of these scammers will even impersonate bankruptcy lawyers or paralegals to convince their victims that they owe money
in spite of their bankruptcy. If somebody claims to be from my office, this is a scam. If you have
given your bank account number to anyone, go to your bank immediately and change your account number. And, of course,
consult with a bankruptcy or consumer rights lawyer right away.
(5) Do I owe tax to the IRS for debt discharged in bankruptcy?
You do not owe tax for debt discharged in bankruptcy. Creditors listed on your bankruptcy should not send
an IRS Form 1099 notifying the IRS of "forgiveness of debt." However, if you get a 1099 form claiming
that the creditor "forgave" or "cancelled" your debt, you will have to deal with it. If
you get a 1099 from a creditor, attach IRS Form 982 to your tax return. If you have already filed your tax return
for the year listed on the 1099, you should file an amended tax return and attach the Form 982 to that. On the Form
982, check Box 1a that says "discharge of indebtedness in a Title 11 case" (Title 11 is the Bankruptcy Code),
write in your bankruptcy case number, and on Line 2 list the amount of the debt shown on the 1099 form. If your
usual tax preparer does not know about Form 982, check around and find a new tax preparer.
(6) What if a debt listed in my bankruptcy
shows up on my credit report?
For 10 years after you file bankruptcy, your
credit reports should show each included creditor with a zero balance and a note that the debt was "included in bankruptcy."
If the entry shows a balance or late payments, follow the instructions on the credit report to file a dispute. If
the debt isn't corrected on your report, find a lawyer to help you. After 10 years (and sometimes before) the debts
should drop off entirely.