What do creditors with mortgages against the debtor’s property do in a Chapter 7 case?
Creditors with valid mortgages against the debtor’s property are usually permitted to repossess or foreclose on the property, if the value of the property does not exceed the amount secured by the property. A creditor must prove the validity of the mortgage and obtain a court order, however, before repossessing or foreclosing of any property, and the debtor should not turn any property over to a creditor until a court order has been obtained. If the value of the mortgaged property exceeds the amount secured by the mortgage, the creditor might not be allowed to repossess the property. The debtor is permitted to retain certain property even if there is a valid mortgage against it, and the debtor may redeem certain mortgaged property from the creditor by paying less than the amount secured by the mortgage (see Question 22, below).
