What happens if you pay off a mortgage while in the process of a Chapter7?

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What happens if you pay off a mortgage while in the process of a Chapter7?

My credit union loan docs state if I file bankruptcy they can foreclose on my condo. My mother wants to pay the loan off (her name is on docs too). What can happen if that’s done prior to me signing the bankruptcy papers? I’m worried about losing my home. Shall we just wait for them to demand payment? Their docs say that can demand payment in full or foreclose for default.

Asked on March 12, 2012 under Bankruptcy Law, Nevada

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

If you or your mother pays off the mortgage on your home while in the process of being in bankruptcy, you end up getting a full reconveyance of the mortgage or trust deed by the lender and end up owning it free and clear which would be a good thing. One issue that could result is that the bankruptcy trustee may want to know where the money came from for the pay off. That could create some issues for you.

Be prepared to discuss this issue with your bankruptcy attorney. 


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