What happens to your mortgage when you file bankruptcy?

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Filing for bankruptcy can be a daunting process, and it often raises questions about the fate of various financial obligations, including mortgages. If you find yourself in a situation where bankruptcy seems inevitable, it’s essential to understand what happens to your mortgage during this process. In this article, we will explore the implications of filing bankruptcy on your mortgage and provide a comprehensive overview of the possible outcomes.

Types of Bankruptcy

Before delving into the impact on mortgages, it’s crucial to understand the different types of bankruptcy. The most common types for individuals are Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy: This type of bankruptcy involves liquidating your assets to pay off your debts. It is typically a quicker process, and any remaining eligible debts are discharged.

Chapter 13 Bankruptcy: Unlike Chapter 7, Chapter 13 bankruptcy involves creating a repayment plan to pay off your debts over a specified period, usually three to five years. This type of bankruptcy allows you to keep your assets, including your home.

Effect on Mortgage in Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, your mortgage lender will be notified, and they will be listed as a creditor in your bankruptcy petition. However, the impact on your mortgage will depend on several factors, including the equity in your home and whether you are current on your mortgage payments.

Equity and Exemptions: In Chapter 7 bankruptcy, your home’s equity becomes part of the bankruptcy estate. However, you may be able to protect a certain amount of equity through exemptions provided by federal or state laws. If your equity is fully exempt, you can keep your home as long as you continue making regular mortgage payments.

Foreclosure Risk: If you have significant equity in your home that exceeds the available exemptions, the bankruptcy trustee may sell your home to repay your creditors. In such cases, you may be at risk of foreclosure if you cannot bring your mortgage payments up to date.

Effect on Mortgage in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is often a more favorable option for homeowners who want to keep their homes. When you file for Chapter 13, an automatic stay is put in place, which prevents foreclosure proceedings. This gives you an opportunity to catch up on missed mortgage payments and reorganize your debts.

Repayment Plan: In Chapter 13 bankruptcy, you will work with a bankruptcy trustee to create a repayment plan. This plan will include your regular mortgage payments, as well as any arrears you owe. Over the course of the repayment plan, typically three to five years, you will make monthly payments to the trustee, who will distribute the funds to your creditors, including your mortgage lender.

Mortgage Arrears: Chapter 13 bankruptcy allows you to catch up on missed mortgage payments through the repayment plan. As long as you make your regular mortgage payments and fulfill the terms of the plan, you can keep your home and avoid foreclosure.


Filing for bankruptcy can have significant implications for your mortgage. In Chapter 7 bankruptcy, the fate of your home depends on the equity and exemptions available to you. If you have substantial equity that exceeds the exemptions, you may be at risk of losing your home. In Chapter 13 bankruptcy, you have the opportunity to catch up on missed mortgage payments and keep your home as long as you fulfill the terms of the repayment plan. It is crucial to consult with a bankruptcy attorney to understand the specific implications of bankruptcy on your mortgage and navigate the process effectively.


– Nolo: www.nolo.com
– Investopedia: www.investopedia.com
– United States Courts: www.uscourts.gov