What happens to a real mortgage when a debtor files for bankruptcy?
I’m a creditor whose debt is secured by a real mortgage. I’ve received recently a notice that the debtor has filed for bankruptcy under chapter 7 of the US Bankruptcy code. What will happen to both my loan and my mortgage? Will I be enjoined from foreclosing the mortgage? The insolvent debtor by the way is an individual, not a corporation. Please prvide legal basis. Thank you. 🙂 A: You have the best kind of security. You have about the strongest position you can get in bankruptcy as a creditor. The way I understand it there will be no need to foreclose. Just file your interest as a creditor as per the instructions on the paperwork. Hopefully, they’ll order the sale of the asset and you will be first in line for the funds from it, provided you are the primary mortgage holder and not subordinate to anyone. Regardless, be sure to speak with a bankructy attorney. You may get a free consultation or may have to pay a drop, but it will be well worth it for the guidance.
