Exploring your options for debt removal may have led you to decide on filing for bankruptcy. You may have found that most people file for either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy, as you may already know, is a liquidation plan, which allows you to remove most or all of your debt after selling some non-exempt assets. While Chapter 13 bankruptcy is beneficial for people who have disposable income, allowing people to pay off their debt after refinancing it.
But, you may have also found that bankruptcy does have a few drawbacks. For example, you can’t file bankruptcy whenever you want and your credit score will drop as a result of filing. However, if you have a mortgage, then you may be wondering how bankruptcy may affect you.
Here’s what you should know:
How Chapter 7 bankruptcy affects a mortgage
As stated above, certain assets are exempt or non-exempt when filing a Chapter 7 bankruptcy. Exempt means you won’t have to sell certain assets if you stay current on your payments. While non-exempt assets are sold to help pay off existing debt – in some cases people have been able to keep some non-exempt assets.
When filing a Chapter 7 bankruptcy, you aren’t obligated to pay off certain forms of debt, such as a loan. However, when you mortgage a home, you are loaned money. While that may make it seem like you don’t have to pay off your mortgage after bankruptcy, you could still face problems because mortgage companies put liens on homes, which gives them the right or interest in a property until the loan is paid off.
Because you don’t want to lose your home, it’s likely in your best interest to finance your bankruptcy in a manner that would allow you to continue paying off your mortgage. Most people exempt their home during bankruptcy, allowing them to continue paying off their mortgage.
How Chapter 13 bankruptcy affects a mortgage
Liquidation isn’t a part of Chapter 13 bankruptcy and so you may not have to worry about your mortgage as much. You may have to state that you are still paying your mortgage and how you plan to do so in your bankruptcy claim, however.
When filing for bankruptcy, you want to ensure you’re taking the right legal steps so you don’t lose your home.