QUESTION

What happens with a deed in lieu after a chapter 7 bankruptcy?

Asked on May 16th, 2012 on Bankruptcy - Texas
More details to this question:
My BK7 was discharged in Jan 2011, and my mortgage was not reaffirmed. In Oct 2011 I dedided to no longer continue to make the payments on my upside down mortgage, BOA has not reported any negative marks on my credit since the debt was discharged and not reaffirmed. It shows on my credit report as "Discharged, Included In Bankruptcy", and $0 balance, but not closed. I'm considering accepting a Deed in Lieu of Foreclosure offer from BOA, and I'm curious of how this will affect my credit. BOA has stated that they will report as "settled", or "Paid Settlement", which is better than foreclosed, but not much better. It would still take me out of purchasing a home for 3 more years. Is the lender, BOA, legally allowed to report "Settled" or "Deed in Lieu" on a discharged debt, considering that it would be another negative mark? My understanding is that the creditor cannot post any negative remarks after the debt has been discharged.
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Daniel James Wilson
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Answered on May 22nd, 2012 at 6:49 PM
If you want to you can just walk away from the house. If it makes you feel better do a deed in lieu go ahead. An accurate report to credit reporting agencies is not a violation of the stay.

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Answered on May 21st, 2012 at 12:26 PM
There is no way to predict how this will affect your credit. The more important question is will signing a deed in lieu open the door for the lender to be able to sue you? Your discharge closed that door, but any new contract after the bankruptcy may re-obligate you for some or all of the debt. I don't recommend to my own clients that they do either a deed in lieu or a short sale after they file for bankruptcy protection. Instead I tell them to let the property foreclose.

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Answered on May 18th, 2012 at 3:30 PM
This is a good example of why people should not reaffirm the mortgage in a chapter 7. The debt was discharged and BOA cannot come after you on that debt. Marking it as "settled" or "paid settlement" should not affect your credit, which has already been damaged by filing bankruptcy. The credit you are able to get afterward is dependent upon the lending practices of the institutions you apply to. They can be assured that you will not be filing bkr for another approximate 7 years. Use that to your advantage.

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Answered on May 18th, 2012 at 3:27 PM
If the mortgage was not reaffirmed and discharged in 2011, you are no longer legally liable for that debt.

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