If you declare bankruptcy, there are established procedures of due process. You don’t automatically lose your house. Nor is your loan accelerated to automatically become due if you’ve been current up to this point on your payments.
Up next, let’s take a look at how bankruptcy affects your current mortgage.
How Does Chapter 7 Bankruptcy Affect My Existing Mortgage?
When you file Chapter 7, your existing property will be deemed exempt or nonexempt. Exempt means you’ll be able to keep the property throughout the bankruptcy process, as long as you can catch up and stay current on your payments.
Nonexempt means you’ll be required to surrender the property or pay its value in cash as a part of the bankruptcy. In some cases, homeowners are allowed to keep nonexempt properties. It all depends on the bankruptcy trustee and how they choose to handle the property.
To understand how Chapter 7 bankruptcy impacts a home mortgage, you must first understand the difference between a loan and a lien.
When you get a mortgage, your mortgage company gives you a loan. The lender lets you borrow money in order to buy a property. When the mortgage company does this, it places a lien on the property. A lien is a right or interest in the property that the lender has until the debt (or loan) is paid in full.
When you file Chapter 7, you’re no longer legally obligated to repay the loan. “Legally obligated” is the key phrase here because Chapter 7 doesn’t get rid of the lien on the property. Your lender still has a right to the property if the debt isn’t paid.
So basically, you don’t have to pay your mortgage. But if you don’t, you will lose your property because your lender will likely enforce the lien they have. If you are able to keep your home as part of Chapter 7, it’s probably a good idea to do everything in your power to keep paying your mortgage loan.
How Are Exemptions Determined In A Chapter 7 Bankruptcy?
Since your house must be considered exempt from the bankruptcy for you to have the most favorable scenario for keeping it, knowing how exemptions are determined is critical. State or federal homestead exemptions determine how your home is handled in a bankruptcy. While specifics will vary by state, here’s how the exemption works.
There’s usually a certain period of time that you must live in the house before it can be considered for an exemption. For example, if you file under the federal statute, you must own the home for 40 months.
The second key determinant for an exemption is the amount of equity you have in the home, which requires knowing your home value. State and federal statutes let you exempt a certain amount of equity from being used by a trustee to pay off creditors and lenders. The exact amount that you can protect will vary from state to state.
Be sure to check the law in your state. Certain states allow you to double the amount of equity exempted if you file for bankruptcy jointly as a married couple.
It’s especially important to remember that if you have so much equity that you fall above the exemption amount, your bankruptcy trustee may choose to sell your home to pay back creditors. They’ll pay you back for any exempted equity following the sale, but you’ll have to find a new home.
In certain situations, you may have the option of reaffirming the debt to avoid losing the house if you continue making your payments. However, it’s best to talk with your bankruptcy attorney and mortgage servicer about your options and how to handle the process.
There are instances where you may have options in deciding which exemption rules apply, so speaking with your bankruptcy attorney is always wise.
What About Chapter 13? What Happens With My Existing Mortgage?
With a chapter 13 bankruptcy, you won’t lose your property. You’ll include details in your repayment plan on how you plan on paying your mortgage. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.
The stay was designed to temporarily halt foreclosure and stop repossession of homes regardless of what stage the foreclosure proceedings are in. For homeowners with too much equity to qualify for a homestead exemption in their jurisdiction, this is an advantage of a Chapter 13 filing.
There are a couple of important caveats to be aware of here: First, you must stay current on any mortgage payments that are due after the filing. If you’re behind on your payments, you can include missed payments in your reorganization plan, but you have to make sure you pay all these debts back by the end of your plan timeline.
In most cases, your personal liability to pay your mortgage was discharged at the end of your Chapter 7 bankruptcy. That means if you fail to pay, the lender can forclose but isn't allowed to come after you for the deficiency after the foreclosure sale. It means you owe $0 on your mortgage.
A Chapter 7 bankruptcy wipes out your financial debt, including your mortgage, but you could lose your house. A Chapter 13 bankruptcy is more of a reorganization, and you can even catch up on payments as long as these are included in your plan.
If you are current on your mortgage payments, you are likely to keep your home, even when you file for Chapter 7. If you are behind on your payments, however, you could potentially lose the home. Chapter 7 bankruptcy does not wipe out your mortgage lien.
For the most part, you don't give up any property in Chapter 13 bankruptcy. This means that if you are current on your mortgage, you keep your home. If you are behind on your mortgage or facing foreclosure, Chapter 13 (unlike Chapter 7) allows you to make up mortgage arrears through your Chapter 13 plan.
If you have not reaffirmed your mortgage, if you stop paying and walk away from the home, the foreclosure will not show up on your credit report. If it does, you have the legal right to dispute that charge and get it removed. If, however, you did reaffirm your mortgage, you are still responsible for the debt.
Your problem will be solved once you file for bankruptcy. Until then, you'll want to avoid giving the creditor any information that could be used against you later.
In a Chapter 7 bankruptcy, the court would consider what you had in equity, after the exemption, to pay off your debts. If your equity after the exemption is little or nothing, you would likely be allowed to keep your house, since selling it wouldn't generate much money.
For example, you can't discharge debts related to recent taxes, alimony, child support, and court orders. You may also not be allowed to keep certain assets, credit cards, or bank accounts, nor can you borrow money without court approval.
Depending upon where you live, you may be able to remain in your home for six months or more after your Chapter 7 bankruptcy has been finalized. Once your bankruptcy is discharged, you will need to find another place to live.
In addition, you have lost the protection that bankruptcy provides, you've paid filing and court fees and owe the attorney. And your credit score has taken a hit for the next seven years.
If your co-owned home is in Chapter 7, the bankruptcy will wipe out your ex's financial obligation for the mortgage on the property. However, because you did not file for bankruptcy, the lender can turn to you for repayment.
A Chapter 13 petition for bankruptcy will likely necessitate a $500 to $600 monthly payment, especially for debtors paying at least one automobile through the payment plan. However, since the bankruptcy court will consider a large number of factors, this estimate could vary greatly.
The filer doesn't have to meet any debt limits under Chapter 11 rules and there are no limits to file. Chapter 13, on the other hand, is generally used by those with a stable source of income. Unlike Chapter 11, there are debt limits that filers must meet debt limits to qualify.
Generally, Chapter 7 is more appropriate for simple cases while Chapter 13 for more complicated bankruptcies. Or somewhat more accurately, Chapter 13 can give you more power over and flexibility with certain kinds of creditors, and if you have non-exempt assets.
California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges that occurred in tax years 2007 through December 31, 2012.
Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time.
If you file for Chapter 7 bankruptcy, you cannot get rid of second mortgages, home equity lines of credit (HELOCs), or home equity loans. Filers in the Eleventh Circuit Court of Appeals, are no longer able to strip off (remove) these types of liens in Chapter 7 bankruptcy.
Is a mortgage considered debt? A mortgage is a type of secured debt because the real estate you're financing is used as collateral against the loan. Non-mortgage debt is any other type of debt that's not secured by real estate, such as personal loans, student loans, auto loans and credit cards.
Introduction: My name is Saturnina Altenwerth DVM, I am a witty, perfect, combative, beautiful, determined, fancy, determined person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
