Bankruptcy Discharge of Deficiency Judgments

16 Aug Bankruptcy Discharge of Deficiency Judgments

The Bankruptcy Courts in Connecticut have determined that a lien arising from a deficiency judgment from a mortgage foreclosure may not be avoidable in a bankruptcy case. This means that if the mortgage bank has recorded the deficiency judgment against other real estate that you own, you may not use the bankruptcy process to avoid it.

Remember that a deficiency judgment in a foreclosure case is the difference between the balance left on the loan when the real estate is worth less than what is owed. See my prior post on this subject.

As with any judgment in Connecticut, the creditor is free to pursue all court processes to collect that judgment. While it does not mean that you can be put in jail for failure to pay, all of your assets may be exposed to court-ordered seizure. Your pay can be garnished, your bank accounts attached and your personal property seized. Most importantly, any other real estate that you own can be liened with a judgment lien. Under Connecticut law, both a deficiency judgment and a judgment lien are good for 20 years and both can be renewed for another twenty years. If you do nothing, the deficiency judgment can follow you forever.

Connecticut cases in bankruptcy have determined that a judgment lien placed for a deficiency judgment in a foreclosure case may not be avoided under the Bankruptcy Code because those liens relate to a mortgage which cannot be modified by law. In re Vincent, 260 BR 617 (B.D.Conn. 2000) held that under 11 U.S.C. §522(f)(2)(C) (the “mortgage exclusion” enacted with the 1994 Amendments to the Bankruptcy Code), the debtor could not avoid a deficiency judgment lien on his homestead which was imposed after foreclosure on another parcel of property. There is a later case by another judge in the district that disagrees and holds that a judgment lien from a mortgage deficiency is avoidable. In re Carson, 274 BR 577 (B.D.Conn. 2002) Cases in the rest of the country, like Connecticut, go either way. However, only a trained professional can tell which one applies to you.

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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