How Will Bankruptcy Affect My Mortgage?

If you are like the many Americans considering filing for bankruptcy, you may be wondering what will happen to your mortgage. For most of us, our homes are our most significant investment. It is where we spend time, raise our families, and the thought of losing our homes is devastating. A major concern for many homeowners in San Diego is whether they will lose the roof over their heads if they file for a chapter 7 or chapter 13 bankruptcy. The good news is that your mortgage company is not allowed to raise your interest rates or change your loan as a penalty for filing for bankruptcy. However, there is a relationship between bankruptcy and your mortgage that we will discuss below.

Mortgages and Chapter 7 Bankruptcies

Chapter 7 bankruptcy is known as liquidation bankruptcy. The bankruptcy trustee will sell most of the debtor’s property to pay creditors. If you file for a Chapter 7 bankruptcy in California, you will likely be able to keep your home. However, you will need to continue making your mortgage payments on time. If you would like to abandon your home, you have the choice of stopping your mortgage payments. The Chapter 7 bankruptcy will discharge your Mortgage Debt related to your home loan at the end of the bankruptcy. You will lose your house, but you will not have to make any more payments, and you will not be on the hook for missed payments. In other words, you can include your mortgage in a Chapter 7 bankruptcy.

Mortgages and Chapter 13 Bankruptcies

A Chapter 13 Bankruptcy is more like a structured repayment plan than liquidating all of your debts. In a Chapter 13 bankruptcy, you will be required to work with the trustee to file a plan for how you will repay your creditors. Typically this plan will last between three and five years. Chapter 13 Bankruptcy plants do not affect your home mortgage. You can file for chapter 13 bankruptcy in San Diego and keep your home. As with a Chapter 7 bankruptcy, you must continue to make your mortgage payments during and after the bankruptcy process. There will be no discharge of mortgage debt after a Chapter 13 bankruptcy is finalized.  

If you were behind on your mortgage payments, you could choose to pay your mortgage late well in a Chapter 13 bankruptcy. You can also choose to include the amount in arrearage into your Chapter 13 debt repayment plan. In some cases, you may have the option to reaffirm your mortgage debt to avoid losing your home in a Chapter 13 bankruptcy. You will still need to continue making your payment, but your lawyer can communicate with the lender and attempt to execute a new document that confirms your intent to keep paying.

Contact a San Diego Bankruptcy Lawyer

If you have questions about how filing for bankruptcy will affect your mortgage, the best thing you can do is discuss your case with a skilled lawyer. Contact the Bankruptcy Law Center today to schedule your free initial consultation.