Does filing Chapter 7 bankruptcy discharge your mortgage loan?
Facing a lay-off, we may have no other option but to file for Chapter 7. We have a mortgage and second mortgage. When you file chapter 7, does this discharge mortgage debts as well? Then do you give up your home, or keep it, or what?
Posted September 9th, 2010 in Bankruptcy Q and A. Tagged: chapter 7, mortgage debts, second mortgage.
Well, technically your mortgage is discharged, but then the mortgage holder is free to repossess the collateral (foreclose). Usually this is not the route taken in Ch 7.
If you want to surrender the home back to the mortgage holder, you can elect "surrender" on your Statement of Intentions. The mortgage holder gets the house back, and any deficiency that remains after they sell it (the difference between what you owe and what they can sell it for) is discharged in bankruptcy.
If you do NOT want to surrender your home, you can reaffirm the mortgage – IF your payments are current on the day that you file and you are able to keep making the payments. Then you continue to make the payments and continue to live there as before.
If you do NOT want to surrender your home but you ARE behind on payments, usually Ch 13 is the only option. In Ch 13 you must keep making your regular mortgage payments and you have 3-5 years to catch up on any arrears you currently have.
There is no way that you can have your mortgage discharged and still keep living in the house. If you want to continue to buy it, you need – one way or another – to keep making the payments on it.
September 9th, 2010 at 6:02 pm