Homeowners often wonder whether a mortgage may be maintained upon filing for bankruptcy. The answer to this question depends on the type of bankruptcy that is declared. Below is an overview of the ways in which home mortgages are affected by Chapter 7 and Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows debtors to repay creditors over a period of time, and this includes outstanding mortgage payments to lenders. Therefore, when a debtor falls behind on mortgage payments, he or she has the option of paying off the outstanding loan amount via a Chapter 13 repayment plan. When a Chapter 13 repayment plan is approved by the court, a lender cannot foreclose as long as a debtor’s mortgage payments are kept current. In addition, debtors are sometimes able to modify a mortgage in order to make the new principal equal the value of the leveraged home. This isn’t an option, however, for a mortgage secured by a debtor’s residence. Chapter 13 mortgage modification is reserved for the following types of mortgages:
- Loans obtained to purchase an apartment or other multi-family dwelling;
- Loans secured by property that isn’t one’s primary residence;
- Loans obtained to purchase lots or buildings that are not part of a debtor’s primary residence; and
- Loans obtained to purchase a mobile home that is both the residence and personal property of a debtor.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy discharges most or all of a filer’s outstanding debts. However, Chapter 7 bankruptcy also allows the trustee assigned to a bankruptcy case to sell a debtor’s nonexempt property in order to pay back the filer’s unsecured creditors. Therefore, if a debtor’s home contains a high amount of nonexempt equity, the trustee will sell it in order to make payments.
One the other hand, Chapter 7 bankruptcy does allow exemptions for some kinds of property. For example, when a debtor’s home qualifies for an exemption, Chapter 7 bankruptcy permits the home’s owner to continue making mortgage payments while remaining in the property. In addition, although bankruptcy discharges a mortgagor’s personal liability upon the bankruptcy case’s conclusion, the borrower must continue to make payments on the property or face the possibility of foreclosure by the lender.
Florida Bankruptcy Attorneys
At the Law Offices of Jeffrey A. Herzog, P.A., we know how difficult it can be to navigate the bankruptcy process alone. From credit score worries to foreclosure fears, we are fully aware of the myriad of valid concerns faced by our bankruptcy clients. Therefore, if you are considering filing for bankruptcy in Florida, please contact us to discuss your situation. Our experienced Florida Chapter 7 and Chapter 13 bankruptcy attorneys will walk you through the bankruptcy process while ensuring that you understand all of your legal options. Please contact us for a free consultation.