What Happens to Your Mortgage after a Bankruptcy Discharge?

One of the primary reasons people are reluctant to file for bankruptcy is because they are worried about what will happen to their home.

The truth is bankruptcy can help you continue living in your home. But what happens to your mortgage if you are behind on your payments or unable to continue making your payments?

Secured Debt vs. Unsecured Debt

First, it’s important to understand the difference between a secured debt and an unsecured debt.

An unsecured debt is a debt that has nothing attached to it. For instance, credit card debt is considered unsecured. On the other hand, a secured debt has something that can be taken, such as a vehicle or a home. If you don’t pay your mortgage the bank can take ownership of your home through foreclosure.

When you apply for bankruptcy, some or all of your debts could be discharged. It’s even possible to discharge secured debt, but most people prefer not to do so.

If you choose not to discharge your secured debt, you’ll be required to make payments on these debts, but you won’t need to sacrifice the property to the bankruptcy court. In order to keep an asset, you’ll enter into a reaffirmation agreement, protect the debt from bankruptcy, and make it non-dischargeable. This is how many homeowners are able to stay in their homes, even though they’ve filed for bankruptcy.

To learn more about how discharge works in bankruptcy, visit the United States Bankruptcy Court website.

How Bankruptcy Affects Your Mortgage

So what happens to your mortgage after you’ve filed for bankruptcy?

It depends. If you want to continue living in your home, you might have the option of doing so. If you want your mortgage discharged, you have the option of doing that too, but you’ll lose possession of your home.

In most cases, the decision is up to you, but your bankruptcy attorney will review your financial situation with you and help you determine the best way to proceed.

For some, giving up their home and “starting from scratch” is the best option. In other cases, remaining in your home is an essential part of your bankruptcy success. Everyone’s personal situation is different and often, having a roof over one’s head is an essential part of their fresh start after bankruptcy.

If you’d like to discuss your situation with an experienced bankruptcy expert, or you’re ready to begin filing, we can help. To schedule a free consultation, contact the Law Offices of Robert M. Geller at 813.254.5696.