What happens when buying a note in bankruptcy?

[Jonathan Spaeth]

What generally happens when buying a note in bankruptcy? Do you, as the new note owner, still have rights to collect on the debt? Does the property usually get foreclosed on?

[Bob Malecki]

With with a Chapter 7 bankruptcy you still have the right to collect on the debt through foreclosure as you are not allowed to contact the borrower directly. You can work with the borrowers attorney or trustee to determine if they want to keep their house and start performing on their debt. 

With with a Chapter 13 bankruptcy you or your servicer will be working with the debtors trustee to determine a repayment plan on both pre-petition and post-petition amount due to you as the lender. A Chapter 13 Bankruptcy will provide a plan for repayment of debt by the debtors and the lender will usually file a relief of stay to have the right to foreclose on the property should the debtor not perform.