After Divorce And Bankruptcy, Am I Responsible To Pay Attorney Fees In Foreclosure?
I received another question from a listener of The Crushing Debt Podcast: I was divorced 8 years ago and my ex-wife got the house in the divorce. I had to declare Chapter 7 bankruptcy 4 years ago. Recently, I was served foreclosure documents because my ex-wife isn’t paying on the house anymore. Will I be responsible to pay attorney’s fees or other charges in the foreclosure lawsuit?
The simple answer is “no,” but let’s deconstruct that question into its component parts.
I’ve often said in this blog, on the Crushing Debt Podcast, and during consultations, the divorce court has the authority to award the house to one spouse or the other, but has no impact on the mortgage because the bank is not a party to the divorce (maybe it is the cause, but that still doesn’t make the bank a party). The transfer of the house can be accomplished two ways: (1) the parties can deed the house from one to the other, or (2) the divorce decree itself can be the conveyance from one spouse to the other. Again, however, even after the conveyance is complete, both spouses would still remain responsible for the note assuming they both signed the note. Also, both spouses would remain on the mortgage, assuming they were married or on title together at the time the mortgage was signed.
Many people have the misconception that they can leave their mortgage out of the bankruptcy, however ALL debts must be included in the bankruptcy. When someone says the mortgage was left out of the bankruptcy, what they typically mean is that the mortgage company was given notice of the bankruptcy but the borrower kept paying the mortgage, reaffirmed the mortgage, surrendered the house, or took some other affirmative act relative to the homestead property and mortgage. To the layman, the house was left out of the bankruptcy; technically, the mortgage was disclosed but then some action was taken to exclude or address that creditor within the bankruptcy case.
If we assume that the bankruptcy was a “no asset” case, meaning that all of the debtor’s assets were exempt so that there was no distribution to unsecured creditors, then the debtor could have (but still should not) leave the mortgage out of the bankruptcy – not list the mortgage company in the petition – and it would still be discharged. Maybe the debtor did not know to disclose the note and mortgage to his bankruptcy attorney and it was a simple and innocent mistake. However, we would never suggest or support intentionally leaving a creditor out of a bankruptcy case; it is the better course to disclose all creditors and then address them or resolve them through the bankruptcy case.
In the listener’s question, let’s assume that he disclosed the debt in the bankruptcy but took no other action. The obligation to pay the promissory note would be eliminated / discharged, but the mortgage lien would remain because there is no mechanism in bankruptcy court under these facts to eliminate the mortgage lien against the house. Therefore, the bank was correct to include the ex-husband in the mortgage foreclosure case to eliminate his interest in the property and the mortgage.
However, because the note was discharged in the bankruptcy case and the responsibility to pay money to the bank flows through the note, any attorney fees or other costs (late charges, interest, inspections, escrow, etc) would also be discharged as to the debtor because of the discharge of the note.
Therefore, the answer to the listener’s question is that (assuming a few facts to be true) he would not be responsible to pay mortgage foreclosure attorney’s fees to the lender in a situation where the ex-wife was awarded the house in divorce and the ex-husband later filed bankruptcy and was discharged. Similarly, if the ex-wife ends up losing the house, or short selling the house, the ex-husband would be able to exclude any 1099c Forgiveness of Debt Income because of the bankruptcy discharge.
For more information on divorce, bankruptcy or foreclosure, please contact us to schedule a free initial consultation to discuss your options at 727-261-0224 or email me directly at firstname.lastname@example.org. Please also subscribe to the Crushing Debt Podcast, on Apple Podcasts, Spotify, and other podcast players, including Amazon Echo (“Alexa”) for more free information about these topics.
Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.