Realizing that you can’t keep up with your debts is a very serious situation for many individuals. For homeowners who opt to file a Chapter 13 bankruptcy, figuring out what to do about the mortgage might be a priority. Be sure to think about these points when you consider your next steps.
First, you’re going to have to keep up with the mortgage payments throughout the bankruptcy. If you have arrearages, those will be handled by the bankruptcy trustee using the payments you make to them. The arrearages that are paid might vary from what you actually owed. However, any arrearage that remains when your bankruptcy is finished is forgiven as long as you kept up on your payments during the case.
Second, the mortgage is considered a secured debt because of the house, but there are times when subsequent mortgages taken out on the property aren’t secured. An example of when this might happen is if you have a home equity loan. It would be considered secured as long as you have equity in your home at the time of the bankruptcy. If you don’t have any equity, e.g., if the primary mortgage balance is $150,000 but the home is currently valued at $110,000, then the court may say that the home equity loan is unsecured.
Third, when a subsequent mortgage is considered unsecured, the trustee takes over payments. The loan holder can’t move the home into foreclosure over this loan because the home is no longer the security for it.
It’s best to discuss your specific case with your attorney to find out what specific issues you need to consider before filing for bankruptcy. This can help you to make decisions based on the facts of your case instead of on generalizations.