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  1. #1

    Default Filing Bankruptcy as a Married Couple When Unmarried

    My question involves bankruptcy in the state of: California

    I have been attempting to help my cousin un-wind a personal and financial mess. She lives in a house the she own's in Joint Tenancy with her ex-husband. They reconnected after divorce and bought a house together. During the financial crisis, 2009 time frame, they filed bankruptcy together. Since she was using a hyphenated last name either the question was not asked or they misled the attorney that filed for them. They filed as a married couple a Chapter 13 bankruptcy. They listed all of the creditors, including the first mortgage and an equity line mortgage that they had with the same bank. The attorney's clerk listed the equity line as "unsecured" in the filing and the first mortgage stated that it would be paid outside of the bankruptcy by the debtor. The debtors were all notified and the bank holding the mortgages, 1st and equity line, never responded.

    They set up a payment plan and they proceeded to send in monthly checks according to the plan to the trustee. At the end of each year the trustee would file and they would get a copy of the statement which showed payments going out to each of the creditors that had responded to the filing notice. All of the other creditors listed that did not respond showed that they were paid nothing, including the bank holding the equity line. They never received any notices from the bank, no communications from the bank at all. A year after the filing they equity line showed up on her credit report as a "bad debt - written off by the bank".

    To this day the bank has not filed any kind of release to that equity line. They are now attempting to re-finance and the title company can not seem to get a release or a payoff from the bank.

    I guess my questions are these: Is this entire bankruptcy filing invalid since the were not actually married? Was it a mistake to list the equity line loan as unsecured?

    I know that that time period was frantic and there were lot's of filings and the bank was probably overwhelmed with defaults and they probably wrote off the 2nd because the 1st was being paid on-time.

    Thanks for any comment!

  2. #2
    Join Date
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    As long as the debtors were given proper notice, it was incumbent on them to pursue their rights. They should not have filed a joint bankruptcy without being married at the time of the filing, but frankly, I don't think it's a big thing other than the government may come after them for some fees they escaped paying.
    They'll have to work with the trustee as to whether they have further obligation on the home equity loan. In Chapter 13, things don't just get discharged automatically.

  3. #3

    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Thanks for the reply. Their bankruptcy was discharged in 2014 with all payments completed according to the terms. All final papers were filed. I am hearing horror stories now about HELOC loans never being released by lenders, even for people that never even drew any money from them. Their problem (no release of the HELOC) may have nothing to do with the bankruptcy filing. Thanks again.

  4. #4
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Are you talking about the security instrument? If there's no balance, all they should need to do is write and cancel the line of credit. You are right the bankruptcy should have nothing to do with an open but zero balance HELOC.

    Who are you in all this anyhow.

  5. #5
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Quote Quoting flyingron
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    Are you talking about the security instrument? If there's no balance, all they should need to do is write and cancel the line of credit. You are right the bankruptcy should have nothing to do with an open but zero balance HELOC.

    Who are you in all this anyhow.
    I have been attempting to help my cousin
    That was the start of the first sentence of the first post in the thread.

  6. #6
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Quote Quoting WhoDonnit
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    They listed all of the creditors, including the first mortgage and an equity line mortgage that they had with the same bank. The attorney's clerk listed the equity line as "unsecured" in the filing and the first mortgage stated that it would be paid outside of the bankruptcy by the debtor. The debtors were all notified and the bank holding the mortgages, 1st and equity line, never responded.

    Notified of what? How did the Chapter 13 Plan treat the 2nd mortgage? Was a separate Motion or Complaint filed to remove the 2nd mortgage lien?

    I believe each district in California has its own procedure to follow (local rule) when stripping off a wholly unsecured 2nd mortgage lien. Unless the 2nd mortgage lien was officially stripped off then, regardless of how the lender was listed in the Schedules, that lien passed through the bk unaffected and is properly a lien on the home today.

    Quote Quoting WhoDonnit
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    A year after the filing they equity line showed up on her credit report as a "bad debt - written off by the bank".
    This means absolutely nothing as it relates to the properly recorded mortgage lien against the property.

    Quote Quoting WhoDonnit
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    To this day the bank has not filed any kind of release to that equity line.
    I assume you meant "release the lien that secured the equity line". Such is proper if the lien was not stripped off in the bk.

    Quote Quoting WhoDonnit
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    I guess my questions are these: Is this entire bankruptcy filing invalid since the were not actually married? Was it a mistake to list the equity line loan as unsecured?
    The bk is not “invalid”. Joint filings for those who are legally married is just a convenience to accommodate spouses. It was wrong for them to file a joint case if they were not married but it is a “wrong” without consequence at this time.

    Personally, the second should have been listed on Schedule D (secured), not Schedule F (unsecured) as, IMHO, until the Court enters an Order voiding the lien, the lender is secured even if the collateral has no value to cover the debt. Regardless, how the debt was classified in the Schedules is not really relevant. What is relevant is how the Chapter 13 Plan treated the lien and whether or not the attorney took that extra step to eliminate the lien. Again, how one proceeds in this endeavor may be specific to the local rules of the district where the case was filed.

    They need to sit down with the attorney who handled the case and go over this issue.

    Des.

  7. #7
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    The lien isn't getting released even if the debt was discharged in bankruptcy. Bankruptcy doesn't extinguish the security in the property, just the ability to have recourse against the debtor.

  8. #8

    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Thanks for all of the input. I was at the county yesterday and this time when I did a document search I located a "Re-conveyance" document from the bank that was filed on 5/12. When I searched last it was June 3rd and they probably hadn't scanned the document into the database yet. It is there now. Thanks again.

  9. #9
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    Default Re: Filing Bankruptcy as a Married Couple When Unmarried

    Quote Quoting WhoDonnit
    View Post
    Thanks for all of the input. I was at the county yesterday and this time when I did a document search I located a "Re-conveyance" document from the bank that was filed on 5/12. When I searched last it was June 3rd and they probably hadn't scanned the document into the database yet. It is there now. Thanks again.
    Excellent. Another successful strip-off.

    Des.

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