When it comes to Florida divorce proceedings, questions may arise concerning chapter 7 bankruptcy and how it will affect a settlement. These questions frequently concern property that has been signed over by one spouse as part of the settlement where the mortgage is still in both names. Petitioners may want to know if this mortgage should be included in their Chapter 7 filing, and what they should do if it is.
A divorce settlement may assign property rights and payment obligations to one party or another, but mortgage lenders are not bound by this agreement. If both parties signed the mortgage, the lender can seek payment from either one regardless of what the divorce settlement may stipulate. If the mortgage is included in a discharged bankruptcy, the petitioner will no longer be obligated to make payments even if their name still appears on the loan.
The only way that a name can be removed from a mortgage is for the property to be sold or refinanced. Some mortgage lenders may demand the signing of a reaffirmation agreement. Agreeing to this would reinstate the mortgage, and would make the petitioner once again responsible for payments. Although mortgage lenders may make this demand, they cannot use a refusal to sign as a reason to foreclose on the property. Foreclosure proceedings cannot be initiated as long as mortgage payments are being made in a timely fashion.
Both bankruptcy and divorce give people the opportunity for a fresh start after going through some trying times, but situations like this show how the two can become entangled. An attorney familiar with bankruptcy law could have encountered divorce related-issues on many occasions, and may be able to advise their clients on the most prudent course of action.
Source: Fox Business, “How Does Divorce Affect Bankruptcy and Mortgage?”, Justin Harelik, July 03, 2013