Frequently Asked Mortgage Questions
Q: If I declare bankruptcy, do I still have to pay my mortgage?
A: If you want to keep your house, yes, you generally must continue to pay your mortgage unless your lawyer can somehow attack the validity of the lender’s claim against your house in a foreclosure defense action. While many times successful, these claims are still relatively uncommon.
Otherwise, should you stop paying your mortgage, the bankruptcy will prevent the lender from recovering the money owed from you, but it will not prevent the lender from recovering the property itself in a foreclosure action.
Q: Will my mortgage payments appear on my credit report?
Generally speaking, lenders will refuse to report your mortgage payments after you have declared bankruptcy. They will most likely tell you that they are not allowed to do so (most often because of their own internal policies, of course). They will further tell you that they can start reporting your mortgage payments, though only if you sign what is called a ” reaffirmation agreement.”
The question of whether to sign a reaffirmation agreement is a question you must carefully address with competent legal counsel. By signing a reaffirmation agreement, in effect, you are telling the court that the lender is allowed to sue you personally again for the money owed on the house even though you declared bankruptcy on that debt.
Clients can often challenge their credit reports under the Fair Credit Reporting Act (FCRA). During this process, clients can attach evidence of payment of their mortgages to the challenge, thereby, to some extent, circumventing the lenders’ efforts.
Q: Does a bankruptcy permanently stop a foreclosure sale?
A: It can. In a Chapter 7, if your house has already been sold at a sheriff’s sale, you can possibly still extend the time you have in your home by up to 60 days after filing a bankruptcy petition, but you must file the petition within what is called your “redemption period.” Because of the complicated timing requirements in these matters, you should contact an attorney as soon as possible to discuss whether an emergency bankruptcy filing would help you keep your house.
A Chapter 13 filing is often a good option when facing a foreclosure sale and trying to keep your house. Once you file bankruptcy, the “automatic stay” will stop your foreclosure. The Chapter 13 bankruptcy then enables you to take your late payments and roll them into your future payments under your bankruptcy plan.
Q: Can a lender foreclose on my house if I fail to pay it during the course of my Chapter 13 plan?
A: Yes. Should you run into problems making your mortgage payments during a Chapter 13, however, you should check with your attorney. Perhaps there are circumstances that might allow your attorney to get you a modified Chapter 13 plan that will free up the money you need to make those payments after all.
Q: What if I don’t want to keep my house? Can I use bankruptcy to eliminate the mortgage?
You can indeed use bankruptcy to get rid of a house, especially when you owe more on that house than it’s worth. The bankruptcy means you eliminate the lender’s ability to collect the money you owe on the house. The lender’s only remedy then becomes its ability to take the house itself.
Q: I have heard I can get rid of my mortgage by filing bankruptcy. This sounds too good to be true. Is it?
It depends. If you are trying to get rid of a house you do not want anymore, a Chapter 7 bankruptcy can allow your creditor to take the house itself without enabling it to collect any money from you.
Further, in a Chapter 13 bankruptcy, the law allows you to do what is called “lien stripping.” This means that you can eliminate mortgages other than your first mortgage. The law authorizes lien stripping when the value of your house falls below, for instance, the full value of the first mortgage.
At that point, your second mortgage gets treated like unsecured debt (like a credit card, in other words). The second mortgage is then rolled into your other unsecured debt payments under your Chapter 13 plan and, at the end of your Chapter 13 plan, whatever still remains to be paid on that second mortgage gets discharged with the rest of your unsecured debt.
Q: If I declare bankruptcy, will I ever be able to get another mortgage again?
Yes, you will. In today’s economy, a number of our clients have been surprised at how quickly they have been able to buy another home.
Contact Us To Learn More About Your Bankruptcy And Mortgage Options
If you still have questions after reviewing this FAQ, call our firm to schedule an initial consultation with our firm to discuss the options that may be available to you in saving your home: 973-323-2953. You can also contact our firm online. We work with clients in Essex County and throughout New Jersey.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.