Can the bank sue your after a foreclosure?

Well, if there was ever a time when the expression “it’s not over until the fat lady sings” comes to mind, it would be in situations where a foreclosure has occurred.

Your life has been turned upside down. You get that dreaded notice of foreclosure and sometime thereafter the foreclosure sale takes place. Part of you breathes a sigh of relief, believing that it is at least over. You move on with your life, relocate you family, and start over. And then, seemingly out of nowhere, a couple of years later, you arrive home to find a lawsuit taped to your front door. You are being sued for $80,000 by your former lender. They are coming after you for a deficiency judgment.

How did that happen? Well, the fact that you live in Virginia does not help. The Commonwealth is among the 30 states in the US that allows lenders to pursue borrowers for what are known as deficiency judgments. In fact, often times it is not even your former bank that is coming after you, but rather a third party collection agency. Banks sell many of these accounts to collection agencies and other third parties at a discount. And the entities who purchase these notes from the bank are not buying them unless they have the intentions of acting.

Let’s say the balance of the mortgage at the time the bank foreclosed was $300,000 and at the foreclosure sale the bank sells the house for $240,000, and the fees to the real estate agent and lawyer who handled the foreclosure for the bank was $20,000, leaving the bank with $220,000. Under this scenario the bank is $80,000 short and is going to look to you to make them whole. When you signed that Note and Deed of Trust at closing upon purchasing you house, you did two things: you agreed to put up your house as collateral in the event that you defaulted on your mortgage payments and you assumed personal liability for the loan the bank was giving you. So, unless you were able to negotiate for a release of personal liability from your bank you remain personally liable for the balance of the loan despite the fact that your home was foreclosed.

What makes the situation especially sad is that some folks who face foreclosure are able to get through the process without having to file for bankruptcy. In other words, while many people facing foreclosure have also accumulated a great deal of other debt along the way, others have managed to avoid doing so. And though the foreclosure sale is a huge blemish on your credit report, your credit score is still looking pretty decent since it has now been 2 years since the foreclosure sale and you have been paying all other bills on time. But now you are faced with this $80,000deficiency lawsuit, and regrettably, for most people, this will mean that now you will have to file for bankruptcy.

The moral of the story: I know you hate going to your dentist for that yearly check up, but you probably hate going to your dentist even more when it is a root canal that is needed. And I know that you hate going to your mechanic for that yearly maintenance work, but you probably hate going even more when a new radiator is needed. And I definitely know that you hate going to see an attorney…I think you know where I am going with this. An ounce of prevention is better than a pound of cure!

Having an attorney or a HUD certified counseling agency at your side may help. You might be able to negotiate for a release of your personal obligation on the mortgage, or in the alternative, file for bankruptcy at the time the foreclosure is happening. The bankruptcy filing will discharge/wipe out your personal obligation on the mortgage (and other unsecured debt) and negate the possibility of a deficiency judgment from occurring in the future. Better now than later!

Do I get to keep my car if I file for bankruptcy?

Do you get to keep your car if you file a chapter 7 bankruptcy? Short answer: in most instances the answer is absolutely. The bankruptcy filing will have no impact on your ability to keep your car.

And now for the longer answer. When you are thinking about your car and chapter 7 bankruptcy there are two key players to keep in mind. The first would be the chapter 7 trustee and the second would be the bank that financed your car. In this article I will focus on the chapter 7 trustee and in my next blog article I will turn my attention to the banks and their pesky Reaffirmation Agreements that everyone keeps wondering about.

The chapter 7 trustee is interested basically in only one thing…assets. As in, is there property that you own that has some significant value and that is not protected by certain bankruptcy exemptions?

So, for those who own their car and are no longer making payments on their vehicle the million dollar question becomes: How much is the car worth? What is its current value? You can go to a site like www.edmunds.com to find out. Once you have figured out how much the car is currently worth you now have to know your state’s bankruptcy exemption laws. In the Commonwealth of Virginia (by the way, if someone can remind me why Virginia is considered a Commonwealth instead of a state I would appreciate it) for instance the permitted amount that you are allowed to exempt for your motor vehicle is $6,000.00. If your car is paid off then chances are it is at least five years old and since the car has depreciated in value so much the $6,000.00 exemption will cover you.

But what if you own a BMW or a Mercedez Benz that’s clearly worth more than $6,000? Before you despair just remember that Virginia also has what is called a Homestead Deed, or as I prefer to call it, a Homestead Exemption. And what does the Homestead Deed do for your? Well, in short, it is an additional bankruptcy exemption. The Homestead Deed is a once in a lifetime exemption that you can use with a maximum value of $5,000 (plus $500 for each dependent that you have). The exemption is increased to $10,000.00 if you are 65 or older or are disabled. So even if you are driving one of them “fancy cars”, between the $6,000 car exemption and the Homestead Exemption you should be covered.

And what if your car is financed and not paid off yet? Well, the odds at that point of you having any equity in the car are slim to none. And even if you do have a bit of equity the bankruptcy exemptions will protect you.

So there you have it. If one of your top concerns is “what will happen to my car if I file for bankruptcy” chances are you have nothing to worry about.

Northern, Virginia Bankruptcy Attorney

ABOUT THIS BLOG. 

Hi there. My name is Robert S. Brandt and I am a bankruptcy attorney with offices in Alexandria and Leesburg, Virginia. Allow me to highlight a few things about my blog:

  • The purpose of this blog is to provide some general advice and guidance about the bankruptcy process in Northern Virginia. While it is true that bankruptcy law is dictated by federal law, each part of the country has its own little twist and turns and each jurisdiction does things a little differently. With that being the case, the focus of this blog will be on the state of affairs in Alexandria, Virginia which is where folks in Northern Virginia end up having to file their bankruptcy case.
  • Hopefully you will find my blog to be useful and informative, but ultimately if you are thinking about filing for bankruptcy I strongly urge you to make an appointment with a bankruptcy lawyer in order to get legal advice about your particular situation. Most bankruptcy attorneys offer a free initial consultation.
  • Finally, while I certainly would not compare bankruptcy work to “brain surgery,” believe me it is still “surgery.” And the phrase “the devil is in the details” is certainly most applicable to bankruptcy work. Point is: just because you read my blog, or any other bankruptcy blog for a couple of hours does not make you a surgeon. For most, filing for bankruptcy is a once in a lifetime event. Go see a professional please.