The "Lost Note Defense" in Bankruptcy Cases

There are a number of defenses that can be used in bankruptcy cases to protest debts that you may wish to have discharged or otherwise cancelled by the lender.  One of the most rapidly growing defenses in bankruptcy cases is called the “lost note defense,” and it basically consists of challenging the debt that the creditor is claiming that you owe by asking the lender to produce the actual loan agreement, or the note.  If they cannot do this, in many cases the debt is considered by the courts to be invalid.  How is the “lost note defense” used in a bankruptcy case?  The method is fairly simple.

Using the Lost Note Defense

In most bankruptcy cases, the lost note defense is used with regards to the mortgage of a property that is being included in a bankruptcy case:

• In order to prevent foreclosure or seizure of the house to place it up for sale, or in order to challenge the debt that the mortgage company claims that the debtor owes, the debtor files a “produce the note” filing in court, asking the mortgage company to find and produce the actual paperwork from the time the mortgage was taken out, showing signatures, dates, and other relevant information. 
• In many cases, this information has been lost or misplaced by the creditor, and the case cannot proceed until this information is found.
• If the information cannot be found, the creditor cannot make any legal challenges or moves in the foreclosure or collection process, and the fault is on the creditor, because they are the ones charged with collecting the debt, and therefore are the ones who are supposed to keep these records. 

In a bankruptcy filing, this might mean that the home can be kept by the individual filing bankruptcy and not be taken back by the bank; or it might mean that the debt which the creditor failed to produce a note for is discharged by the bankruptcy court and the debtor is not required to pay it back.

Getting Help

In most cases, it is beneficial to retain the services of a competent lawyer to help with your “lost note defense,” as the lawyer can make sure that necessary paperwork is filed in a timely fashion and that any legal challenges brought by the creditor are answered swiftly.  Since you will have a bankruptcy lawyer already working on your case, you will want to discuss this potential defense with them.