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How Chapter 13 bankruptcy affects a mortgage

On Behalf of | Jan 15, 2015 | Chapter 13 | 0 comments

Kentucky homeowners who are having financial difficulties may be wondering how filing for Chapter 13 bankruptcy affects their mortgage. When this specific type of bankruptcy is filed, the mortgage lender typically wants to prevent the foreclosure process as much as the homeowner.

Often, the lender will try to work with a homeowner who has missed payments if the individual contacts them as soon as possible. Giving as much information as possible is recommended when addressing the lender. For example, indicating whether the financial situation will be short-term or long-term could help the lender determine the best course of action to recover missed payments. Foreclosure costs the mortgage lender as well, which could make it motivated to work with the homeowner’s situation.

Upon filing bankruptcy, mortgage lenders are not allowed to pursue recovery until the stay on collection activities has been completed. The lender will have to abide by the terms that were established in the bankruptcy payment plan because it is considered secured credit with the home being a tangible asset. Depending on the amount of total debt that is owed and how much non-essential income the individual has, the Chapter 13 payment plan could be three or five years long. It will include back payments and late fees associated with the mortgage. If the debtor complies with the plan’s terms, the mortgage lender cannot pursue foreclosure. However, if a payment is missed it is possible that the automatic stay will be terminated and the lender may have the legal right to foreclose on the home.

The process and details of filing Chapter 13 bankruptcy can be difficult to understand. There are several eligibility and other requirements that a bankruptcy attorney can explain while considering the forms of debt relief that may be available.

Source: sfgate.com, “What Do Mortgage Companies Do With Chapter 13 Bankruptcy?”, M.C. Postins, accessed on Jan. 12, 2015