What Happens To My Mortgage If I File Bankruptcy?
If you own a home and file bankruptcy, you can keep your home and mortgage secured by the mortgage. Depending upon whether you file Chapter 7 or Chapter 13, the course of events that follows the filing of the bankruptcy will be slightly different. One analysis that must be done relates to the equity in your home. Generally speaking, you are allowed $35,000.00 in equity per spouse to keep a home in Chapter 7. This is known as an Exemption. In Chapter 13 you can have additional equity beyond those limits; however, it will affect your Chapter 13 payment.
Your Mortgage In Chapter 7
If you own a home with a mortgage and you file Chapter 7, it is important that you are current on your mortgage upon filing the Chapter 7, or by the time of the 341 hearing at the very latest. If you wish to keep the home in Chapter 7, you will continue to make mortgage payments to a bankruptcy department at the mortgage company while the Chapter 7 case is active. Once the case closes, you will resume making payments to the mortgage company in the same manner you did prior to filing.
It is important to note that the filing of a bankruptcy technically discharges the debt (mortgage); however, unless you are planning to surrender the property in bankruptcy, you will need to continue to make mortgage payments.
Unlike reaffirmations for car loans, mortgage debt is very rarely reaffirmed in bankruptcy. Courts frown upon it in an attempt to protect debtors who have recently received a discharge from substantial debt. The American Bankruptcy Institute has written at length about this stance.
If you do not reaffirm your mortgage, provided you stay current on mortgage payments post-bankruptcy, the mortgage lender has no recourse. You keep the house as long as you keep making payments. You receive credit against your balance for all of your payments, and you build equity presuming the value of the house continues to increase.
One downside to not reaffirming a home is that the mortgage company will not report your payments to the credit bureaus. Your remedy for this is to send a letter once a year to each credit bureau indicating the payments you have made. If the creditor fails to file a response disputing that you made the payments, you will get credit for the payments on your credit reports.
One tremendous upside to not reaffirming a mortgage in Chapter 7 is that if you lose your job, the house value is ‘upside down’ in the future, or for any other reason you wish to walk away from the house (and the debt), you can do so. The lender is limited to receiving the property as their only recourse. They can not pursue you for any remaining debt on the home in the event they sell it for less than what you owe on it.
Your Mortgage In Chapter 13
In Chapter 13, you can also keep your home and mortgage, provided you continue to make payments as usual. Additionally, many clients use Chapter 13 as a way to force the lender to let them catch up on missed payments. Your Chapter 13 plan will propose to pay the normal mortgage amount, plus a small amount each month for the purpose of catching up on missed payments over a 60 month period. When the Chapter 13 bankruptcy closes out after 60 months, your mortgage will be deemed current.
Due to the ability to use Chapter 13 for the purpose of catching up on missed payments, many clients use Chapter 13 to avoid a foreclosure. A Chapter 13 can even be filed as an emergency filing, in order to stop a foreclosure. So long as you make ongoing payments in Chapter 13 under your confirmed Chapter 13 plan, the mortgage lender has no choice but to allow Chapter 13 to move forward. Additionally, you will be obtaining a discharge of unsecured debt in Chapter 13.
Old Mortgage Debt In Bankruptcy
If you have old mortgage debt on your credit, a Chapter 7 or Chapter 13 filing will address that debt and your discharge will include it. If your current mortgage is a burden you can surrender your current real estate to the lender in bankruptcy, and the lender will be limited to the home as repayment of their debt– the bankruptcy filing will prevent them from pursuing you as an individual if the sale of the property leaves a remaining balance on the mortgage debt.
Speak With A Bankruptcy Lawyer Today
If you are facing foreclosure or would like to consider bankruptcy for another reason, we are here to help. Our clients who own real estate are able to file bankruptcy every day while keeping their homes. We can show you how. If you would like a consultation you can call 704.749.7747 to speak with an attorney today. Or you can click HERE to request a consultation. All consultations are free and can be done over the phone. We know you have choices. We hope you choose Layton Law.