While not exactly a sexy topic, there is a growing body of case law regarding what constitutes a creditor violation of the discharge injunction imposed under 11 U.S.C. Section 524 in a Chapter 7 case.
In a recent case decided by Chief Judge Alan Trust in the EDNY, Judge Trust clarified and distinguished a creditor’s post-discharge rights when a mortgage debt is discharged in bankruptcy and the remedies that are still available to the creditor under applicable State Law.
A mortgage, in its simplest form, is a pledge of a property to guarantee the payment of a debt. When a mortgagor files Chapter 7 bankruptcy, the underlying personal obligation to pay the debt under the terms of the mortgage note is extinguished. The discharge in no way denies or diminishes a mortgagee’s right to recover the collateral (real property) in a State Court foreclosure proceeding. Under NY Law, there are certain noticing requirements throughout the proceeding which must be dispatched to the mortgagor/debtor. These notices are NOT violations of the discharge injunction, and are only informational in nature as to the mortgagor/debtor