In case you file for bankruptcy while you have an active mortgage loan, there are many different ways in which it can play out. Depending on your lender, you can reaffirm the loan or you might be eligible for a loan modification. Some lenders will continue to accept payments, while others might simply stop taking money from you after you file. Bankruptcy effects on mortgages also depends on whether you are filing for a chapter 7 or chapter 13.
A mortgage is a home loan that a bank or a lender gives you to make it possible for you to buy a home. Once you agree to the terms and the property is signed over to you, the bank will hold a certain lien over the property that you bought. That means, even though the property is yours, the bank will hold a certain amount of interest over it. It is done to make sure that the bank doesn't lose money if you stop paying your EMIs. The mortgage supplying company will have this lien on the property till the payments are completed.
Bankruptcy Effects on Mortgages
Filing for bankruptcy, especially a chapter 7, where all your assets are liquidated, you are no longer legally obligated to repay your loans. But that being said, you still do owe the lender money and the lien that the lender holds on the property still stands. So, even if you don't legally have to pay the loan, the mortgage supplier can take hold of the property. The idea is to keep the home, so, if you do have to file for bankruptcy, make sure you speak to your lender beforehand and work out a settlement procedure that lets you keep the house and you keep paying your loan. With a chapter 13, you will not lose your house, but you will have to chart out a repayment plan.
If you are facing foreclosure or worried about your mortgage payment, contact a Sacramento bankruptcy lawyer to discuss your options.