What Happens to Mortgage Debts After Bankruptcy?

Nick-GajewskiMany people worry about how filing a bankruptcy case will affect their home.  As long as your case is carefully planned out ahead of time, you can typically file for bankruptcy relief without affecting your mortgage or your home.

Mortgages Debts After Chapter 7

Depending on the type of bankruptcy case you file, you may either eliminate your mortgage debt or leave it untouched.  In a Chapter 7 case, for example, you must choose whether or not to reaffirm the mortgage debt on any property you have.  Reaffirming a debt basically means that you will still be obligated for that debt after your Chapter 7 case is discharged.  The discharge will not apply to the mortgage debt, and you can simply keep on paying your mortgage like normal.

Things can be a little more complicated if you choose not to reaffirm the mortgage debt.  Declining to reaffirm the debt itself isn’t usually enough to be considered a default on your Mortgage.  Declining to reaffirm means that the debt obligated by the Promissory Note will be discharged, but you can usually continue to voluntarily make mortgage payments in order to stay in good standing under the terms of the Mortgage.  The Promissory Note is what obligates you to make payments, but the Mortgage is what gives the mortgage company a lien on your property.  As long as you continue to voluntarily make payments, most mortgage companies will not foreclose.

Keep in mind, most mortgage companies will require you to be current on your mortgage payments in order to reaffirm the debt.  Additionally, if the Chapter 7 trustee decides there is a large amount of unexempt equity in your property, he or she may decide to sell the property to raise money to pay off the mortgage and have extra funds to pay the unsecured creditors.

Mortgage Debt After Chapter 13

In a Chapter 13 case, you can also decide whether to keep your property (in which case you remain obligated on the debt) or surrender the property and discharge the debt through the bankruptcy case.  If the property is surrendered, then the mortgage company will sell the real estate and then file a claim for the unsecured deficiency balance in your Chapter 13 plan.  This becomes one of the debts that will be repaid through the reorganization plan.  If you decide to keep the mortgage, then you remain obligated to pay the mortgage on the contract terms as though you’d never filed bankruptcy.  The debt is not discharged and the terms of the mortgage contract aren’t modified or changed in any way.

The biggest thing to take away is that filing a bankruptcy case will generally not interfere with your mortgage debts.  Unless you specifically seek to discharge the mortgage in your bankruptcy case, you’ll be able to keep your mortgage just as it was before you filed.

Naturally, when dealing with any legal procedure that can affect your home or mortgage, you should consult an attorney before getting involved with the court.  At Bond & Botes, our bankruptcy attorneys have years of experience dealing with mortgages and all aspects of bankruptcy.  If you’re considering bankruptcy but you’re worried about how it will affect your assets or debts you want to keep, please call one of our offices to set up an appointment.  We have conveniently located offices in Alabama and Mississippi, and we offer free initial consultations.

Share This Page

Bond & Botes Law Offices

At Bond & Botes, we now offer full service bankruptcy consultation and filing over the phone or by video from the comfort and safety of your home or office. Please call 1-877-581-3396 or click here to setup your free phone or video consultation.

The lawyers at the Bond & Botes affiliated offices serve clients at offices in Anniston, Birmingham, Mobile, Montgomery, Opelika, Decatur, Huntsville, Florence, Haleyville and Gadsden, Alabama; Vicksburg, Hattiesburg and Jackson, Mississippi. Read our disclaimer here. You can view our Privacy Policy here.

Alabama Offices

Birmingham

2107 5th Avenue North
Age-Herald Building
Birmingham, Alabama 35203
Phone: (205) 802-2200


Shelby County Location
15 Southlake Lane, Ste 140
Birmingham, AL 35244
Phone: (205) 802-2200


Florence Location
121 S. Court Street
Florence, AL 35630
Phone: (256) 760-1010


Huntsville Location
225 Pratt Avenue NE
Huntsville, AL 35801
Phone: (256) 539-9899


Montgomery Location
311 Catoma Street
Montgomery, AL 36104
Phone: (334) 264-3363


Decatur Location
605 Bank Street
Decatur, AL 35601
Phone: (256) 355-2447


Haleyville Location
914 19th St.
Haleyville, AL 35565
Phone: (205) 486-3580


Gadsden Location
430-B Chestnut Street
Gadsden, AL 35901
Phone: (256) 485-0195


Opelika Location
216 South 8th Street
Opelika 36801
Phone: (334) 887-7666


Anniston Location
1302 Noble St #2C
Anniston, AL 36201
Phone: (256) 344-3559


Cullman Location
200 Second Avenue SW
Cullman, AL 35055
Phone: (256) 739-9866


Mississippi Offices

Jackson Location
5760 I-55 North, Ste 100
Jackson, MS 39211
Phone: (601) 353-5000


Hattiesburg Location
607 Corinne St, Ste B8
Hattiesburg, MS 39401
Phone: (601) 264-7200


Vicksburg Location
1212 Farmer Street
Vicksburg, MS 39180
Phone: (601) 353-5000

© 2024 by Bond & Botes Law Offices. All rights reserved. Disclaimer | Privacy Policy