Can I Keep My Home If I Am Behind On My Mortgage?
The short answer is yes, most people who file for bankruptcy can keep their home, but there are again multiple factors to take into account.
In Chapter 7 bankruptcy, your mortgage is substantially unaffected by the filing. You have the right to surrender your interest in the home and allow the mortgage to foreclose on the property and you will owe them nothing. However, if you want to keep the home and want to file for Chapter 7 and are behind on the mortgage, then you really only have two options. You will need to either catch up on the mortgage payments before the mortgage company forecloses on the property or you can seek a mortgage modification from the lender. Bankruptcy will neither interfere nor assist with this process generally, though some jurisdictions have adopted formal programs for seeking a mortgage modification while under the protection of the bankruptcy court. This generally holds true for second mortgages and HELOCs as well, but there are scenarios where these liens can be removed from the property (termed “avoided” in bankruptcy) and then discharged. I will discuss that in more detail shortly.
Chapter 13 was designed to protect homes where the debtor is behind in their payments. You still will have to catch up your past due mortgage payments, but you can do so over a much longer period than most mortgage companies would agree to while remaining under the protection of the bankruptcy court. Simply put, once you file your Chapter 13 bankruptcy, you are required to maintain your ordinary monthly mortgage payment going forward. Chapter 13 on its own will not change your ordinary monthly mortgage payment. Any past due amounts, known in bankruptcy as arrears, will be included within your plan of reorganization and become part of what you pay to the bankruptcy trustee. The trustee will cure the mortgage arrears by paying them over the term of the plan. At the end of your Chapter 13 plan, assuming you made all current payments, the trustee will have caught up your arrears and your mortgage will once again be current.
Like in Chapter 7, you can seek a mortgage modification while in a Chapter 13, which can be particularly helpful. Not only will it bring your mortgage current, often reducing your ongoing monthly obligation as well, but it will remove the arrears from your Chapter 13 plan and allow you to reduce your trustee payment accordingly. Second mortgages, HELOCs and other liens can be addressed in your Chapter 13 plan as well, either curing arrears, paying the debts in full or avoiding the liens on the property. This gets complicated, so having an experienced bankruptcy attorney to assist you will be invaluable.
