When homeowners experience financial difficulties, meeting their mortgage obligations may eventually become impossible. For many of them, bankruptcy is an opportunity to get a fresh start by discharging all non-exempt debts or organizing them into an affordable payment plan. Each type of bankruptcy treats mortgage debt differently, however, so it is important to evaluate all your options before determining which one is the best debt relief option for you.
Chapter 13 bankruptcy
If you file Chapter 13, you can take up to five years to repay your mortgage arrears. To qualify for Chapter 13, you must have some disposable income remaining in your monthly budget after all living expenses have been covered, including the delinquent mortgage and related obligations, and not owe more than a certain amount of secured and unsecured debt.
After filing, you will have the opportunity to pay off any outstanding mortgage balance and keep your home. If you happen to have a second mortgage and the house is worth less than you owe on it, that mortgage can be eliminated in a Chapter 13 bankruptcy and not require repayment.
Chapter 11 bankruptcy
If your debts exceed the limitations imposed by Chapter 13, Chapter 11 may be the answer. You can catch up on arrears, eliminate second mortgages, and attempt to obtain a mortgage modification. Because they are more complicated and expensive, Chapter 11 filings are much less common than Chapter 13 or 7.
Chapter 7 bankruptcy
Unlike Chapter 11 and 13, Chapter 7 does not specifically provide homeowners with a platform to catch up on mortgage arrears, but it does allow you to eliminate unsecured debt, such as credit card balances, leaving you with more money to dedicate to the mortgage. Bear in mind that this only works if the lender has not already served you with a foreclosure summons and complaint. If they have, keeping your house will be a lot more difficult. You can also try for a mortgage modification if the lender is willing to work with you.
If your situation is such that there is no viable way for you to deal with your mortgage situation and keep the house, a Chapter 7 bankruptcy frees you from any obligation to pay mortgages or judgments. In general, you will be able to live mortgage-free in the house until it is sold at a foreclosure auction, giving you enough time to save sufficient funds for a security deposit on a rental property.
If you are thinking about filing bankruptcy and have questions about how your mortgage will be affected, then contact a New York bankruptcy attorney today. Expert legal advice will help you make the best decision for your current and future circumstances. Jayson Lutzky offers in-office consultations at no charge in his Bronx, NY office. Call 718-329-9500 to set up an appointment if you want a fresh financial future.