There are different types of bankruptcy that serve different purposes. Chapter 7 is known as the discharge bankruptcy, while Chapter 13 is known as a reorganization bankruptcy. In either scenario there is the potential to keep your house under specific circumstances, but there is also the potential to lose your home. For the best chance at keeping your home and the items that are important to you and your family, you’ll need experienced bankruptcy lawyers to help.
Each case is different and largely depends on how you handle it and how you have handled your house payments. While there are guidelines in place, an experienced lawyer can help you assess your personal situation and determine which method is right for you. This is because filing a Chapter 7 bankruptcy might work well for you in certain areas, but may not pass the means test or work well for you in other circumstances, like saving your house.
Dealing with Late Mortgage Payments
Most people have late mortgage payments by the time they file bankruptcy. This is often one of the biggest motivating factors behind their filing. However, these late payments can also be the things that prevent you from keeping your house. Keep in mind that unless you file Chapter 13 bankruptcy and have a legal plan in place to catch up on your late payments, the bank does not have to accept any late payments from you once you are in arrears. However, once your Chapter 13 is approved, they do have to accept those payments, and you have to make those payments as well as your current mortgage payments. Chapter 7, on the other hand, works a bit differently. Click here to learn more about foreclosure defense and keeping your home.
Mortgage Payments and Chapter 7
Under Chapter 7 bankruptcy, you can discharge all debts owed on your house if you list your house as part of your bankruptcy. Of course, that also means you don’t get to keep your house. However, when you file Chapter 7, you only list the debt you want discharged. That means you don’t have to list your house if you don’t want to. The caveat in this case, is the issue of late mortgage payments. Again, the bank is under no obligation to accept payments on past due amounts. When you do make a payment on your mortgage, if it is accepted, it will be applied to the past due balance before the current mortgage payment. What this means is that if you want to keep your house and not file it under the Chapter 7 bankruptcy, you may have to come up with the sum total of the late payments, the current payment, and any fees and penalties associated with the late payments.
For many people, the large payments that have to be covered after the bankruptcy is filed are just too much. It’s important to make sure you will be able to cover them before you exclude your house from the bankruptcy. Otherwise, you could end up having everything other than the debt for the house discharged and still end up losing the house. If you lose the house after your bankruptcy is discharged, you may still owe for late payments and fees on the house you lost but still have to pay to live somewhere else. Discuss your options with your lawyer before you make any decisions, especially as this one has such a large impact on your finances and credit.