Can I Declare Bankruptcy and Keep My House If I'm Behind on My Mortgage Payments?
- When you file a bankruptcy petition, the court enforces an automatic stay against your creditors. The automatic stay prevents your creditors, including your mortgage lender, from proceeding with further collection actions against you until your bankruptcy case is resolved. If you're behind on your mortgage payments, the automatic stay can delay foreclosure. If you have not yet been served with notice of a pending foreclosure, the automatic stay prevents your lender from forcing the sale of your home. If a foreclosure notice has been served, your lender can potentially petition the court to have the automatic stay lifted so the sale may proceed.
- If you choose to file a Chapter 7 bankruptcy case, you have the option of reaffirming your mortgage debt. Reaffirming the debt serves as a good faith notice to your mortgage lender that you plan to resume making your mortgage payments once your other debts are eliminated. If you have equity in your home, you can prevent your other creditors from placing a lien against it by claiming a homestead exemption. The homestead exemption allows you to remove your home's equity value from the list of assets your creditor can seize in lieu of payment. Doing so protects you against the forced sale of your home. Homestead exemption limits vary by state.
- If you have assets you wish to keep in addition to your home, filing Chapter 13 bankruptcy allows you to retain them and to avoid foreclosure. In a Chapter 13 bankruptcy, you agree to repay your debts over a three- to five-year period based on your income. If you're behind on your mortgage payments, the repayment period allows you to bring your mortgage current and potentially renegotiate its terms with your lender. Additionally, if you owe a second mortgage on your home, you may be able to eliminate it entirely through Chapter 13. If you owe more on your primary mortgage than your home is worth, the second lien will be stripped away.
- Filing bankruptcy can have serious implications for your credit. A Chapter 7 filing can remain on your credit for up to ten years while a Chapter 13 filing can remain for up to seven years. If you reaffirm your mortgage in Chapter 7 and fail to make timely payments after your discharge, your lender is free to resume collection actions against you. The same is true if you miss a payment at any time during the Chapter 13 repayment period. Consider speaking with a qualified bankruptcy attorney to determine whether filing bankruptcy is your only option for saving your home.