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You have a mortgage on your home, but you find yourself drowning in debt. Will you lose your house? Do you have options? Should you file Chapter 13 or Chapter 7 bankruptcy? So many questions! The bottom line is this: You need some type of bankruptcy protection.

The following will examine bankruptcy with a mortgage.

Having a Mortgage but Facing Bankruptcy

There are two types of bankruptcy that people can file if they feel their debt is overwhelming. They are Chapter 13 and Chapter 7:

  • Chapter 13 – You must be able to catch up on any mortgage arrearages, continue paying your mortgage, and pay for any nonexempt home equity through a payment plan involving Chapter 13. This type of bankruptcy stays on your credit report for about seven years.
  • Chapter 7 – If you’re currently on your mortgage payment, you can keep your home if you exempt all home equity, and after bankruptcy, continue paying the mortgage. This method of bankruptcy stays on your credit report for roughly 10 years.

Note: Many people, after completing Chapter 7 bankruptcy within 2 to 4 years, qualify for a home mortgage. After Chapter 13, possibly sooner.

What Happens to Your Mortgage with a Bankruptcy?

Bankruptcy exemptions are offered by some states. Will you be able to use one with which to cover your home equity? Here are some possible options:

  • Intended to protect home equity, one type of exemption is referred to as a “homestead exemption”.
  • A “wildcard exemption” may be offered by your state if the just-mentioned exemption isn’t enough.

You may be able to stack these two together, depending on the laws in your state. Make sure that real estate isn’t excluded, however, by the wildcard exemption. If these are not an option, bankruptcy may be your next step. But which one? Chapter 7 or Chapter 13?

The Effects of Bankruptcy on Mortgages

Chapter 7: Because it’s quick and easy, some people choose to file for Chapter 7. In roughly 4 months, your bankruptcy case can end. You will, however, likely have to sell much of your property/assets. Unfortunately, if you’re behind on your mortgage, this won’t help you save your house from foreclosure.

Chapter 13: You will not have to sell your possessions if you file Chapter 13. Does this mean that compared to Chapter 7, filing Chapter 13 lets you keep more of your property? Not necessarily. To keep your property, you’ll pay creditors through the Chapter 13 plan. You have to do these two things:

  • Pay for nonexempt equity.
  • Pay the arrearages and monthly mortgage payments.

In some cases, though it’s not easy, you may be able to use Chapter 13 to reduce a mortgage balance. Talk to a qualified financial professional regarding this option.

Getting a Mortgage after Bankruptcy

Following bankruptcy, the fact that you filed will stay on your credit report for seven years if you file Chapter 13; 10 years or so if you file Chapter 7. Getting a loan for a home – a mortgage – can be tricky with bankruptcy on your credit report. You may need a co-signer or consider some other option. Again, talking to an expert in financial affairs is your best bet.

Loans, credit cards, etc. will be generally hard to get following bankruptcy for a number of years. It doesn’t mean you can’t build your credit back up, however. Don’t give up.

Now that you know what happens to a mortgage after Chapter 13 discharge, it’s time to talk to a financial professional about your situation.

Worried about Bankruptcy and Your Mortgage? Have a Conversation With The Debt Defenders by Ciment Law Firm, PLLC

If you own a home with a mortgage, but your debts have gotten out of control, is Chapter 13 an option? By speaking with the experienced professionals at The Debt Defenders by Ciment Law Firm, PLLC, you’ll be able to figure out what type of action best suits your circumstances. We’ll even provide you with a free case review to get the ball rolling.

Contact us today at 866-493-1308 for an appointment. You can also fill out our convenient online form to begin communication.