If you’re considering declaring bankruptcy, you should be aware of your alternatives. Individual bankruptcies under Chapters 7 and 13 are the most common.
There are specified due process requirements if you declare bankruptcy. You do not lose your home automatically. If you’ve been current on your payments up to this point, your loan will not be expedited to become due.
The parts that follow will explain how bankruptcy will affect your current mortgage.
How Does Chapter 7 Bankruptcy Affect Your Existing Mortgage?
Your current property will be classified as either exempt or nonexempt when you file Chapter 7. Exempt implies you’ll be able to keep the property if you can catch up and stay current on your payments during the bankruptcy procedure.
As part of the bankruptcy, you will be obliged to relinquish the property or pay its worth in cash. Nonexempt properties are sometimes allowed to be kept. The bankruptcy trustee’s decision on how to manage the property is final.
To comprehend how Chapter 7 affects your current house mortgage, you must first distinguish between a loan and a lien.
Your mortgage company provides you with a loan when you acquire a mortgage. They let you borrow money to purchase a home. They put a lien on the property when they do this. The mortgage company has a right or interest in the property until the debt (or loan) is paid.
You are no longer legally bound to repay the debt once you file Chapter 7. The critical term here is “legally bound” because Chapter 7 does not remove the lien on the property. If the loan is not paid, your lender has a claim to the property.
In other words, you are not required to pay your mortgage. But if you don’t, you’ll lose your home since your lender will undoubtedly enforce the lien. If you are fortunate to maintain your house as part of a Chapter 7 bankruptcy, you should do everything to keep paying your mortgage debt. For more information about bankruptcy and it’s affects on your mortgage, you can visit www.badcredit-mortgage.co.uk.
How Does Chapter 13 Bankruptcy Affect Your Existing Mortgage?
Borrowers will not lose their property in a chapter 13 bankruptcy. Your repayment plan will outline how you want to pay off your mortgage. An automatic stay is usually imposed when a Chapter 13 petition is filed. Creditors must cease collecting attempts under an automatic stay.
It was created to stop foreclosures and repossessions, regardless of where they were in the foreclosure process. This is a benefit of a Chapter 13 filing for homeowners who have too much equity to qualify for a homestead exemption in their area.
There are a few important cautions to be aware of: You must first keep up with any mortgage payments due after the filing. Missed payments can be included in your reorganization plan if you’re behind on payments, but you must pay off all of your obligations by your plan’s deadline.
Getting a Mortgage After Bankruptcy
You may not be able to acquire a mortgage while in bankruptcy, but if you otherwise qualify, you can get one after that. There may be no waiting time for nonconforming loans from government entities.
It’s also worth mentioning that any bankruptcy has a significant negative impact on your credit. It is not impossible to move forward and obtain a mortgage in the future, but you may need to recoup part of your assets. A secured credit card or a credit-building loan may be beneficial.
Bankruptcy is bad for your mortgage and other financial obligations. It doesn’t have to be a financial death sentence, though. A Chapter 7 bankruptcy discharges all of your debts, including your mortgage, but you risk losing your home. A Chapter 13 bankruptcy provides greater structure, and you can even catch up on payments if they are part of your plan.
Whether your house is exempt or nonexempt in a Chapter 7 bankruptcy will significantly impact whether you keep it. Chapter 13 bankruptcy allows you to keep your home as long as you follow your payment plan. If you can keep your house, keep up with your payments.
After a bankruptcy is dismissed or discharged, it is feasible to obtain a mortgage. After the bankruptcy is over, certain loan kinds demand a waiting time, while others do not. In any event, it’s critical to be able to rehabilitate your credit before applying again. The impact of bankruptcy on your credit report and score is long-term.
Finally, because bankruptcy has a significant negative impact on your credit, you should investigate all options, including negotiating with creditors. If you’re having difficulties paying your mortgage, you may want to explore a modification, short sale, or deed in place of foreclosure.
