Filing for bankruptcy is a major financial decision and should be considered carefully. Bankruptcy will affect your credit score for 10 years and will make getting credit and loans difficult. If you file for bankruptcy, you can keep your home if you reaffirm your home mortgage loan and demonstrate to the courts that you will be able to continue to make your mortgage payments.
Bankruptcy allows you to either wipe out or consolidate debt when you are unable to manage your debt. Bankruptcy should be considered as a last resort after negotiations with creditors have failed. Homeowners who file for bankruptcy can either reaffirm their home mortgage loan or they can opt to give up the property.
You can file either a Chapter 7 or a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, all debt is eliminated except for reaffirmed debt such as a car loan or home loan. In a Chapter 13 bankruptcy, debt is consolidated, interest rates are decreased or eliminated and you make monthly payments to the courts to pay for your debt over the course of about three to five years.
If you believe you will be able to afford your existing mortgage once your other debt is eliminated in a Chapter 7 bankruptcy, you should reaffirm your home mortgage loan so that it is not included in the bankruptcy. Your bankruptcy lawyer can help you complete paperwork necessary to reaffirm your mortgage loan. If you feel as though you will not be able to afford the mortgage after the bankruptcy, you can opt to sell your home or allow the mortgage company to repossess the property at the conclusion of the bankruptcy. To possibly avoid giving up your home, you may want to request a loan modification from the mortgage company to make payments more affordable.
If you are filing a Chapter 13 and are behind on your mortgage payments, you will need to prove to the courts that you can pay back your delinquent payments along with your other debt over the course of three to five years.
You should decide what you intend to do concerning your home before your bankruptcy finalises. The mortgage should always be reaffirmed before the court completes the bankruptcy proceedings. If you give up your home initially, but then change your mind shortly after, you will need to file a motion with the court to reopen your case so that you can reaffirm your mortgage debt. However, the courts may not allow the case to be reopened and you may still lose your house.
If you intend to keep your home, keep making regular monthly payments on your mortgage while in the bankruptcy process and beyond. Making regular payments demonstrates your ability to afford the home and makes the process of reaffirming the loan easier.