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What Will Happen to a Mortgage After Filing Bankruptcy?

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When a debtor files for bankruptcy they often have questions as to what will happen to their mortgage. This will all depend on the type of bankruptcy they file. It will also depend on if they even decide to include the mortgage in their bankruptcy plan.

Many people don’t realize that when filing for bankruptcy they can choose to file without including certain debts, such as a mortgage. As long as the mortgage is up to date and they can continue to make payments, it is possible that the bankruptcy plan can be filed without including their mortgage lender in the bankruptcy plan.

Chapter 7 vs Chapter 13: Know The Differences

Filing a Chapter 7 bankruptcy means that all debts are going to be discharged and will be wiped away according to the plan. There will be no further payments to these creditors, and the debtors will be giving up any security they had pledged as a result of the bankruptcy. In the case of a mortgage, this means that unless a plan is worked out with the mortgage lender, or the mortgage is not included in the plan, the debtors are relinquishing their right to the property and the lender will then take over the property.

This is why many debtors will not include the mortgage in the bankruptcy plan and continue to pay on the mortgage. When a mortgage is in arrears, it is not uncommon for a lender to modify the mortgage in a way that the past due payments can be added to the back of the loan so that after the bankruptcy has been discharged future payments will be made on time without the borrower having to make up for their past due arrearages.

When filing a Chapter 13 bankruptcy, a plan is put in place to continue to make payments to any secured creditors. While any unsecured creditors will have to be charged off, secured debts such as mortgages or car payments will become part of the plan. These secured creditors will continue to receive payments after the bankruptcy has been discharged, meaning the debtor will be able to retain the rights to their property as long as they abide by the payment agreement set forth in the bankruptcy petition.

This only affects the mortgage arrears, and not the mortgage itself. By filing a Chapter 13 bankruptcy any past due payments can be included in the plan, or may be modified by the lender to bring the account current so that the payments can continue to occur on a monthly basis in a normal fashion without having to pay extra to make up any past due amount after the bankruptcy has been discharged.

While someone may be able to avoid foreclosure by filing bankruptcy, this will not prevent the lender from beginning foreclosure again should future payments not be made. This is why some people file Chapter 13, as they believe they can continue to make timely payments after being relieved from their other debts, while others file Chapter 7 and give up their rights to their property, as future payments will still be a burden. Being able to make payments after the discharge of a bankruptcy is a key factor in what happens with a mortgage after bankruptcy has been filed.

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