How will declaring bankruptcy affect my mortgage payments?

Once filed, bankruptcy immediately implements an “automatic stay” provision, preventing creditors from taking any further collections actions until the bankruptcy case is resolved. This means any actions underway by lenders, including foreclosures and other liens, will cease temporarily. Moving forward, bankruptcy will affect mortgage payments differently, depending on the type of bankruptcy filed, including:

• Chapter 7: Automatic stay protections will remain in place throughout the Chapter 7 process. If eligible for Chapter 7, a debtor will receive a discharge of all unsecured debts (unfortunately, virtually all mortgage loans are secured to the homestead). However, under state exemption laws, a debtor may be able to retain his or her homestead in limited instances. If unable, the homestead will become part of bankruptcy estate, and ultimately, the lender will lay claim to their share of the estate. However, deficiency liens against a debtor, which are unsecured, would be discharged as well.

• Chapter 13: Mortgage payments, as well as payment of all other outstanding debts, will become subject to the Chapter 13 plan, which is approved and supervised by a court appointed trustee. What will happen in your specific case regarding mortgage payments under Chapter 13 will depend on a number of case-specific considerations, which will factor in all debts, income, and current expenses.

For bankruptcy mortgage related answers, it will be important to consult with a bankruptcy attorney in your state. State-specific laws, including homestead exemptions, will greatly influence whether one can retain their homestead, as well as how the related mortgage payments will stand following the bankruptcy process. Furthermore, case-specific considerations, including the existence of second or subsequent mortgages, as well as the current status of loan will also influence the affect bankruptcy will have in your case.