Issues in Filing Allowed Secured Mortgage Claims in Bankruptcy

If you are overwhelmed by debt, bankruptcy can give you the chance to get back on your feet and start over, unburdened by excessive financial obligations. However, going through the bankruptcy process is no simple task. Getting the most out of a bankruptcy filing is a complex process that must take into account a web of statutes and regulations, court precedents, and the particulars of your individual circumstances.

In Tennessee, one emerging issue in bankruptcy cases is how to handle allowed secured claims when a mortgage is involved. This issue can be very complex, and it is highly recommended that you seek legal counsel from an experienced Tennessee bankruptcy attorney if you encounter the issue during your bankruptcy. Even so, it can be helpful to gain at least a basic understanding of how you may encounter this issue in your bankruptcy case.

When Secured Property Is Surrendered, It Raises Many Concerns

Part of a consumer bankruptcy is compiling an accurate and complete list of debts. When a consumer goes into bankruptcy, his or her creditors (those to whom the debtor owes outstanding obligations) may file a "proof of claim" to establish the terms and amount of the debt, in an effort to collect all or part of the debt in the final disposition of the bankruptcy.

However, the terms of a bankruptcy can be a two way street. Just as creditors may be concerned with getting at least partial repayment, debtors may be equally concerned about discharging all debts completely. If a creditor does not file a timely proof of claim, the debtor (or a bankruptcy trustee) may file a proof of claim on the creditor's behalf.

But what about instances in which the debtor files a proof of claim on the creditor's behalf, and the creditor later wishes to contend that the proof of claim is not high enough? There is a date after which creditors have waited too long to file their own proof of claim, and when it has passed, they cannot exercise influence in the bankruptcy. Yet, once brought into the bankruptcy by the debtor's proof of claim on their behalf, creditors have no deadline for filing objections as to the amount of the claim.

When dealing with mortgages, the process can become even more complicated. Unlike medical bills, credit card balances, and other unsecured debts, a mortgage is a debt attached to a piece of collateral - a home. Generally i, a proof of claim must be filed when concerning an unsecured debt n order for the claim to be allowed. On the other hand, most courts have held that secured creditors are able to file a proof of claim in a bankruptcy case if they so choose. Rather than participating in the bankruptcy case, secured creditors may look to their interest in the property, which generally may pass through the bankruptcy case unaffected.

If the debtor wishes to simply surrender the collateral for a secured debt (a home, in the case of a mortgage), the secured creditor may be entitled to an unsecured deficiency claim should the collateral be worth less than the creditor's allowed secured claim. Essentially, if you owe more on your mortgage than your house is worth, when you surrender the home, your mortgage holder may have an unsecured claim in bankruptcy for the difference between your home's value and the amount outstanding debt on your mortgage. In today's real estate market, this is not an uncommon occurrence.

In this situation, the mortgage holder becomes an unsecured creditor, subject to the requirement of filing a timely proof of claim in order to participate in the bankruptcy case. However, the amount of an unsecured deficiency claim is normally fixed when the collateral is sold at a foreclosure sale. In the case of a home, such a sale might not occur for months, making it impossible for the creditor to meet the deadline for filing an accurate proof of claim. However, there are a few different approaches to resolving this issue. One way or another, the debtor and the creditor usually have to agree on the amount of the unsecured deficiency claim, or the court will have to value the collateral.

Clear the Confusion by Contacting a Tennessee Bankruptcy Attorney

If you are considering bankruptcy and a mortgage is involved, there are obviously many challenges to consider. Still, there are also many opportunities and a variety of legal tools at your disposal to help you pursue the outcome you desire. If you're considering bankruptcy, or have already begun the process, you may need an experienced advocate by your side. Contact a Nashville bankruptcy attorney today to begin building your bankruptcy strategy.