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What happens to your mortgage in a Chapter 13 bankruptcy?

On Behalf of | Oct 8, 2021 | Chapter 13 Bankruptcy

Filing for bankruptcy allows you to temporarily halt collection activity and potentially discharge your unsecured debts, like credit card balances or medical debt. However, your biggest debt may not be an unsecured one.

Your mortgage is secured by your home, which means that if you default on it, the lender can foreclose and take ownership of your house. Filing for bankruptcy gives you an opportunity to temporarily stop foreclosure or other debt collection efforts. It can also help you regain control of your financial situation.

In a Chapter 13 filing, part of the process will involve renegotiating your debts and making payments in a pre-arranged plan for several years. What’s will happen to your mortgage as part of the filing?

You will need to reaffirm or renegotiate your mortgage

Those who want to keep their mortgage or other secured debt as is during a Chapter 13 bankruptcy filing will need to reaffirm the account during their bankruptcy proceeding, essentially agreeing to continue paying on the debt as promised before.

However, some people will use Chapter 13 Bankruptcy as an opportunity to negotiate mortgage modifications. You could change how long you have to repay the mortgage, your interest rate or even the structure of the loan itself.

A loan modification can be particularly beneficial for those who have multiple past-due payments that they cannot make at once or who have a high interest rate and could not refinance previously to take advantage of the lower current interest rate.

Provided you reach an agreement, your house shouldn’t be in danger

Chapter 13 bankruptcy is a wage earner’s plan. Ideally, it gives you an opportunity to make payments on your debt and to discharge what you cannot reasonably repay without losing any of your property. That includes your home.

You do not have to worry about cashing out your equity or losing your house if you qualify for Chapter 13 bankruptcy and follow the proper process to obtain a discharge. A timely filing could stop foreclosure and might even facilitate your modification negotiations.

Learning more about the steps involved in Chapter 13 bankruptcy can help you protect your most important assets during financial hardship.


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