Mortgages and Bankruptcy

What happens to a person's mortgage when they file for bankruptcy? Basically, this all depends on the type of bankruptcy they file and if they include the mortgage in the bankruptcy.

Many people don't realize that when filing for bankruptcy they can choose to file without including certain debts, such as a mortgage. As long as the mortgage is up to date and they can continue to make payments, it is possible that the bankruptcy plan can be filed without including their mortgage lender in the bankruptcy plan.

Chapter 7 vs Chapter 13: Know The Differences

Filing a Chapter 7 bankruptcy means that all debts are going to be discharged and will be wiped away according to the plan. There will be no further payments to these creditors, and the debtors will be giving up any security they had pledged as a result of the bankruptcy. In the case of a mortgage, this means that unless a plan is worked out with the mortgage lender, or the mortgage is not included in the plan, the debtors are relinquishing their right to the property and the lender will then take over the property.

This is why many debtors will not include the mortgage in the bankruptcy plan and continue to pay on the mortgage. When a mortgage is in arrears, it is not uncommon for a lender to modify the mortgage in a way that the past due payments can be added to the back of the loan so that after the bankruptcy has been discharged future payments will be made on time without the borrower having to make up for their past due arrearages.

When filing a Chapter 13 bankruptcy, a plan is put in place to continue to make payments to any secured creditors. While any unsecured creditors will have to be charged off, secured debts such as mortgages or car payments will become part of the plan. These secured creditors will continue to receive payments after the bankruptcy has been discharged, meaning the debtor will be able to retain the rights to their property as long as they abide by the payment agreement set forth in the bankruptcy petition.

This only affects the mortgage arrears, and not the mortgage itself. By filing a Chapter 13 bankruptcy any past due payments can be included in the plan, or may be modified by the lender to bring the account current so that the payments can continue to occur on a monthly basis in a normal fashion without having to pay extra to make up any past due amount after the bankruptcy has been discharged.

While filing for bankruptcy can put a hold on foreclosure proceedings, the foreclosure process can be restarted if the payments agreed to in the bankruptcy plan are not adhered to. That is why some people choose to file Chapter 7 and give up their rights to the property, while others that feel they can maintain future payments file for Chapter 13. An important part of what happens to a mortgage after filing bankruptcy depends on the ability to continue to make payments after the bankruptcy has been discharged.

Many people don't realize that when filing for bankruptcy they can choose to file without including certain debts, such as a mortgage. As long as the mortgage is up to date and they can continue to make payments, it is possible that the bankruptcy plan can be filed without including their mortgage lender in the bankruptcy plan.

While filing bankruptcy can put a hold on foreclosure proceedings, the foreclosure process can be restarted should payments not be made per the agreement of the bankruptcy plan. That is why some people abandon their property after filing Chapter 7, while others filing Chapter 13 feel they can maintain the ability to continue to pay their mortgage. An important part of what happens to a mortgage after bankruptcy is filed depends on the ability to continue paying on the mortgage after the bankruptcy has been discharged.

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