When you file a bankruptcy and have a home loan or mortgage on your house, you must disclose the loan on your bankruptcy petition. Depending upon what kind of bankruptcy you file, the home loan has different treatment. If you file a chapter 7, you would reaffirm or keep the home loan and keep paying the loan. If you did not wish to keep your home and filed a chapter 7, you would surrender the home and the home loan is discharged.
If you are behind on your home loan but wish to keep your home, you can file a chapter 13 bankruptcy and it allows you to catch up your home loan over a 3-5 year period of time while maintaining your normal mortgage loan payment. At the end of your chapter 13 bankruptcy, you would then be current on your mortgage loan and you would just continue to make the normal mortgage payments.
If your mortgage loan is for your principal residence, filing a bankruptcy does not change the terms of the loan. The interest rate and number of years left to pay the loan stay the same. If you have an adjustable rate mortgage, the interest rate can still adjust. If you have a fixed interest rate, your rate will stay the same. If your property taxes and homeowners insurance are being escrowed with your mortgage payment, the mortgage company has to continue to escrow those items.
It is important to talk to a knowledgeable bankruptcy attorney that has experience with both chapter 7 and chapter 13 so the attorney can advise you on the best type of bankruptcy for you to file. The attorneys at Bond & Botes, PC have experience in representing clients in both chapter 7 and chapter 13 so that your home loan will receive the correct treatment.
Cynthia T. Lawson is the Managing Partner of the Bond & Botes Law Offices location in Knoxville, Tennessee. She holds a Bachelor of Science from East Tennessee State University, and a Juris Doctorate from University of Memphis, Cecil C. Humphreys School of Law. She currently serves as a Mentor for the Moment in bankruptcy.Read her full bio here.