The credit union filed a motion to lift the automatic stay of the Bankruptcy Court so it could foreclose on the property. The credit union also argued that the mortgage was in default under the terms of the mortgage itself; a clause in the mortgage stated that the mortgage would be in default upon the debtors filing for bankruptcy.

The Court first addressed the issue as to whether the debtors could stay in possession of the property absent a reaffirmation agreement or redemption.

This Court found a split of authority across the country as to whether the debtors should be compelled to surrender the property to the credit union when debtors refused to reaffirm the debt or redeem the property. The Court found, however, that the intent of the Bankruptcy Code is not to place greater financial stress on the debtor after the filing of bankruptcy than they were exposed to prior to the filing.

Here, the Court held that debtors should be entitled to retain possession of the mortgaged home even if there was no reaffirmation or redemption agreement. Debtors are, nonetheless, obligated to maintain regular monthly payments to the credit union or, the credit union could file for foreclosure in a regular State Court.

This Court also held that the “due on bankruptcy” clause contained in the mortgage was void. The credit union was, therefore, prohibited from foreclosing as long as the debtors brought their mortgage account current at the credit union and continued their regular monthly payments, as well as timely paying property taxes and homeowners insurance.  GNC Community Credit Union vs. Michael Stefano, (U.S. Bkrcy Court, W.D. Pennsylvania, Case No. 91-1805).

Author: Charles R. Harroun, Attorney at Law