How Can Bankruptcy Affect My Mortgage?

If you are struggling under piles of debt and bankruptcy is the only option left, myriad questions flood your thoughts. What will happen to the business? What will happen to my credit history? Will I be able to stay in my home? With all the other legal and financial problems, no one wants to face the prospect of losing their home. And if the house is under a mortgage, the dreaded question looms. Will my mortgage be affected by the bankruptcy? If so, to what degree? The primary answer is – Yes, declaring bankruptcy can affect your mortgage in a number of ways.Chapter 7 Versus Chapter 13 BankruptciesIf you have some form of income and wish to file a bankruptcy, you will probably qualify for a Chapter 13 Bankruptcy. I you are absolutely penniless with no income to pay toward your debts, you would file a Chapter 7 Bankruptcy. These two types of bankruptcies will have different affects on you mortgage.Chapter 13 Bankruptcy and Your MortgageDeclaring a Chapter 13 Bankruptcy will somewhat affect your mortgage, and perhaps even in a beneficial way. Under Chapter 13, you work with your creditors through a trustee appointed by the court. Working with the trustee and your mortgage holder, you renegotiate your payments to determine the amount of debt to repaid over a period of three to five years.You also negotiate the amount of the payments to make them lower. And you renegotiate the interest rate to a lower amount. So, these modifications should cause some relief for your cash flow problems. However, and this depends on the renegotiations, these terms could be temporary. Usually the renegotiation allows three to four years at these new rates. Also, the term of the mortgage is usually redrafted from a twenty-five year mortgage to a thirty-five year mortgage.Chapter 7 Bankruptcy and Your MortgageLosing your home is one of the most painful aspects of Chapter 7 Bankruptcy and that can happen if you have no income to make payments. Under a Chapter 7, two possibilities exist regarding your house. You can retain the house by reaffirming the mortgage and somehow continue to make payments to the lender, or you can surrender your house and thereby discharge all your mortgage liabilities.As a debtor who reaffirms a loan, the debtor keeps it out of the bankruptcy legalities and agrees to make payments as usual. This requires the drawing up and the signing of a reaffirmation agreement. There are stipulations: Mortgage payments must be current. Or the payments must be brought current within a few weeks of the bankruptcy declaration. The debtor must renegotiate a new payment agreement with the lender.If the debtor fails to work out a new payment plan with the lien holder and the mortgage is delinquent, the debtor will have to surrender the property. In such a case, the lender should file a motion-for-relief stay that will allow foreclosure procedures to begin.Seek Bankruptcy AssistanceFor a better understanding of bankruptcy law and how declarations of bankruptcy will affect your mortgage, and so many other important things in your life, you should consult an experienced bankruptcy counselor or attorney. Declaring bankruptcy is not a good do-it-yourself project.