Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.
Hello and thank you for allowing me to address your legal question.
Yes, you can live in the house since you are still the owner of record. However, your fears are well-founded: The lienholder would be within its rights to foreclose on the house after you move back and make repairs since liens survive bankruptcy. You cannot legally force the lienholder to release the lien, so at this point putting money into the property may not be worth the risk. Perhaps a better strategy would be to negotiate with the lienholder. For example, you may be able to work out a deal whereby you will repay part of the original loan in exchange for a release of the lien (i.e. offer to sign a new note).
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DISCLAIMER: Please understand that the complexities of most legal problems cannot be sufficiently addressed in this setting. Accordingly, my post is intended as general information only, and should neither be construed as specific legal advice, nor as an adequate substitute for the retention of legal counsel.