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How does filing bankruptcy affect my Mortgage?

Homeowners considering Chapter 7 or Chapter 13 bankruptcy are often concerned about how their mortgage will be affected. Thankfully, the mortgage company cannot change the terms of your loan or raise the interest rate because of bankruptcy. However, some homeowners lose their home when they file for Chapter 7 Bankruptcy. You may keep your home and mortgage terms under Chapter 13.

Your Mortgage Under Chapter 7 Bankruptcy

If your home is exempt from your Chapter 7 bankruptcy filing, you may be able to continue with your mortgage and keep your home. You must keep paying the mortgage, even after you are discharged of debt, because these new payments do not get discharged and the lender still has security interest in the property. The lender can foreclose on you if you don’t begin to make payments.

Chapter 7 does not create a plan to pay off debt like Chapter 13 does, and if you want to keep your home, you will have to catch up on payments.

This information may not be helpful if your home isn’t exempt from bankruptcy. Under Chapter 7, most of your debts, if not all are discharged and a trustee sells your nonexempt property in order to pay off the debt that wasn’t eliminated through bankruptcy. That means, if your house is not exempt, then it will be sold to cover your remaining debt.

Your Mortgage Under Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy will not change your mortgage on your home and you may continue to pay your mortgage during and after filing for bankruptcy. Chapter 13 allows for arrears on your mortgage payments if you are falling behind, unlike Chapter 7 bankruptcy. As long as you make the payments for your plan and your mortgage payments, the lender will not be able to foreclose on you. This affords more time for you to catch up on any missed payments.  Modify Your Loan 

You can also try asking your lender to modify the home loan so payments are easier to make and keep up with. There are government programs that help with loan modification and it is a common method for those in the process of filing for bankruptcy.

Hire a Bankruptcy Lawyer

Bankruptcy is a complicated facet of the law and can be overwhelming for those with little financial law experience. Consider calling a bankruptcy lawyer to discuss you options and whether bankruptcy is right for you. They can determine which chapter to file for, help you create payment plans to take care of any remaining debt and also represent you in court. It is never advisable to face the question “how does filing bankruptcy affect my Mortgage?” alone, so call Brandy Austin law Firm for a free consultation today. You will be glad you did.