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28
Oct
1991

U.S. Supreme Court Rules: Mortgage Debt Survives Chapter 7 Bankruptcy

In one of the last opinions issued by U.S. Supreme Court Justice Marshall, the Supreme Court held, in the case of Curtis Johnson v. Home State Bank (111 S. Ct. 2150) 1991, that a creditor’s secured home mortgage loan survives a debtor’s Chapter 7 filing for bankruptcy.

Here, the debtor defaulted on a promissory note secured by a mortgage to the bank on his real estate. The bank initiated a foreclosure on the mortgage, however, the debtor filed a Chapter 7 bankruptcy and was discharged by the Bankruptcy Court on the personal obligation owing pursuant to the promissory note.

The bank proceeded with foreclosure, and the debtor immediately filed a Chapter 13 bankruptcy to stop the foreclosure proceedings.

The bank filed a proof of claim for the debt owing on the mortgage and the debtor objected to the bank’s claim. The debtor maintained that the Chapter 7 discharge should prevent the bank from filing a claim in the Chapter 13 case.

The U.S. Supreme Court held that a creditor’s claim, secured by real estate, survives a Chapter 7 discharge. The Court ruled that the bank has a legitimate claim in the Chapter 13 repayment plan to be repaid under the plan. The Court held that although the debtor may have been discharged of the personal obligation owing under the mortgage, the debt owing on the real estate was not discharged.

Author: Charles R. Harroun, Attorney at Law



This entry was posted on Monday, October 28th, 1991 at 11:33 am and is filed under Bankruptcy, Mortgages, National. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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