Can I Go Bankrupt & Keep My House if It's in Foreclosure?

By Ciele Edwards

If you've fallen behind on your mortgage payments, catching up may prove challenging. Not only do mortgage companies add late fees to your unpaid debt, they also have the option to refuse partial payments. After a certain amount of time – often 90 days – your mortgage lender can "accelerate" your loan and demand you pay the loan balance in full. If you can't catch up, your lender will seize your home through foreclosure. Chapter 13 bankruptcy is one tool you can use to gain control of your debt while maintaining ownership of your home.

If you've fallen behind on your mortgage payments, catching up may prove challenging. Not only do mortgage companies add late fees to your unpaid debt, they also have the option to refuse partial payments. After a certain amount of time – often 90 days – your mortgage lender can "accelerate" your loan and demand you pay the loan balance in full. If you can't catch up, your lender will seize your home through foreclosure. Chapter 13 bankruptcy is one tool you can use to gain control of your debt while maintaining ownership of your home.

Chapter 13 Bankruptcy

Unlike Chapter 7 bankruptcy, which generally requires that you relinquish ownership of major assets, you can file bankruptcy under Chapter 13 without worrying that doing so will cost you your home. When you file Chapter 13 bankruptcy, you must submit a repayment plan to the court, which will take about three to five years to complete. The bankruptcy trustee reviews your income and expenses to ensure that your repayment plan is reasonable. You must make the agreed-upon payments to the trustee. The trustee then distributes your payments to your creditors.

Get a free, confidential bankruptcy evaluation. Learn More

Automatic Stay

When you file bankruptcy, your creditors must immediately suspend all collection activity against you – including foreclosure proceedings. This protection period is known as the "automatic stay." The automatic stay remains in effect until the bankruptcy judge confirms the repayment plan, your case is dismissed or you convert your case to a different bankruptcy chapter. Once the court confirms your repayment plan, you must begin making payments to your mortgage company and other creditors according to the terms of the plan.

Chapter 13 Discharge

After you complete your repayment plan, the court discharges your bankruptcy case. The court also discharges any remaining unsecured debt that you were not able to pay off during the repayment period. Only your mortgage arrears are included in the repayment plan. Thus, you will still owe your monthly mortgage payments throughout this process, as well as after the process is complete. You will not, however, owe any additional charges and fees that you incurred prior to filing for bankruptcy. Because a Chapter 13 discharge eliminates your responsibility to pay off other forms of debt, such as credit card debt and collection accounts, you may find that you have more disposable income than you possessed prior to the bankruptcy – making paying your mortgage less financially taxing.

Bankruptcy Dismissal

If you're serious about saving your home from foreclosure, it is crucial that you keep up with your bankruptcy payments and follow the court's instructions. If you default on your repayment plan or fail to comply with any of the court's additional stipulations, the judge in the case can dismiss your bankruptcy. Should this occur, you will lose the protection of the automatic stay and your mortgage lender can once again initiate foreclosure proceedings against you.

Get a free, confidential bankruptcy evaluation. Learn More
Do You Have to Wait for Your House to Foreclose Before Filing Bankruptcy?

References

Resources

Related articles

What Happens if a Bank Discharges a Home Loan During a Bankruptcy?

At the end of a bankruptcy case, you will receive a bankruptcy discharge that relieves you of all financial obligations toward the debt. The discharge also applies to home mortgages. Depending on whether you file for Chapter 7 or Chapter 13 bankruptcy, and whether you are current on your monthly payments, you may have several options if you would like to keep your home.

Can a Primary Residence Be Seized if You File for Bankruptcy?

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. This depends on the type of bankruptcy you file and whether you take the necessary steps to keep your home. However, your situation may require you to consult with a bankruptcy attorney if it’s too complicated to make these decisions on your own.

How to File for Bankruptcy After a House Is Sold at a Sheriff's Sale

Losing your home to foreclosure through a sheriff's sale may not end your financial difficulties with your mortgage lender. If your home is sold at auction for less than what you still owe on the home loan, the bank may still sue you for the difference plus attorneys' fees and costs. Filing bankruptcy will give you protection from your creditors and wipe clean your debts. Once your bankruptcy petition is filed, an automatic stay is put in place that prohibits creditors from attempting to collect on outstanding bills.

Related articles

What Happens to the Cosigner if the Signer Goes Bankrupt?

When someone cosigns a loan for you, they are promising to repay the money if you don’t. A lender will require ...

Will I Lose My Car if My Chapter 13 Is Dismissed?

Vehicles are one type of asset the court can address during Chapter 13 bankruptcy, but a dismissal won’t ...

Can I File Chapter 13 When Being Sued on a Mortgage?

If you are delinquent on your mortgage payments and have been served a notice of foreclosure, you may be on the verge ...

Ways to Prevent the Loss of Your Home in Chapter 7 Bankruptcy

U.S. bankruptcy law serves two purposes. The first is to give people an opportunity for a new start by wiping away some ...

Browse by category