Bankruptcy is a bummer. No one has ever said “OH MAN! I’m so excited to file bankruptcy! It’s going to make everything so awesome!” That being said, sometimes it needs to be done. If you have explored all of the alternatives and have decided to file bankruptcy, it’s important that you know what your options are and how they will impact your existing mortgage, or your future ability to obtain home loan financing.

What’s the difference between Chapter 7 and Chapter 13?

Chapter 7 bankruptcy is also known as total bankruptcy. It’s a wipeout of many (or all) of your debts. Also, it might force you to sell, or liquidate, some of your property in order to pay back some of the debt. Chapter 7 is also called “straight” or “liquidation” bankruptcy. Basically, this is the one that straight-up forgives your debts (with some exceptions, of course).

Chapter 13 bankruptcy is more like a repayment plan and less like a total wipeout. With Chapter 13, you file a plan with the bankruptcy court detailing how you will repay your creditors. Some debts will be paid in full, some will be paid partially or not at all, depending on what you can afford. Chapter 7 = wipeout. Chapter 13 = plan.

How does Chapter 7 bankruptcy affect my existing mortgage?

When you file Chapter 7, your existing property will either be deemed exempt or nonexempt. Exempt means you will be able to keep the property throughout the bankruptcy process. Nonexempt means you will either be required to surrender the property or pay its value in cash as a part of the bankruptcy. In some cases, people are allowed to keep nonexempt properties. It all depends on the bankruptcy trustee and how they choose to handle the property.

To understand how chapter 7 impacts your existing mortgage, you must first understand the difference between a loan and a lien.

When you get a mortgage, your mortgage company gives you a loan. They let you borrow money in order to buy a property. When they do that, they have a lien on the property. A lien is a right or interest in the property that the mortgage company has until the debt (or loan) is paid in full.

When you file Chapter 7, you are no longer legally obligated to repay the loan. “Legally obligated” are the key words here because Chapter 7 does not get rid of the lien on the property. Your lender still has a right to the property if the debt is not paid. So basically, you don’t have to pay your mortgage. But if you don’t you will lose your property because your lender will likely enforce the lien they have. If you are able to keep your home as part of Chapter 7, it’s probably a good idea to do everything in your power to keep paying your mortgage.

How long do I have to wait after Chapter 7 to get a new mortgage?

Most reputable lenders, including Quicken Loans, will not consider you for financing until two years after the Chapter 7 bankruptcy has been discharged. If you find a lender who will consider you prior to two years, make sure you are fully aware of all the terms and conditions included in your mortgage. Really scrutinize the details and look at all the costs to ensure you’re not being scammed.

Ok, what about Chapter 13? What happens with my existing mortgage?

With a chapter 13 bankruptcy, you will not lose your property. You will include details on how you plan on paying your mortgage in your repayment plan. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts. It was designed to temporarily halt foreclosure and stop repossession of homes regardless of the stage of the foreclosure proceedings.

How long do I have to wait after Chapter 13 to get a new mortgage?

Most reputable lenders, including Quicken Loans, will not consider you for financing until at least one year after the Chapter 13 bankruptcy has been discharged. Some exceptions are made for US veterans. If you find a lender who will consider you prior to one year, make sure you are fully aware of all the terms and conditions included in your mortgage.

Filing for bankruptcy is a big decision that has a lot of implications for your current and future financing. Make sure you discuss your options with a lawyer or your financial advisor before you stop making payments or file for bankruptcy.

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This Post Has 69 Comments

  1. I have a mortgage with my ex who has made it so I can not be there with my credit and that on there I am not able to get my own place. I was told to file and that he would lose the trailer as well (which is fine he has options) is that the case or could I file and he stay on? They wont take my name off because I was approved without him. He has bad credit as well and wont be approved on his own. How does this work?

    1. I would make sure you speak with a bankruptcy attorney about this if I were you. You do have the option to not include the mortgage in the bankruptcy, but I think you need to determine what’s best for you. I will tell you that if it’s not included and he continues to make the payments, he should be able to stay there. There are certain options which could allow you to get a mortgage down the line without having that mortgage included in your DTI if you can prove he was making the payments all this time. I’m going to recommend you speak with one of our Home Loan Experts about this at (888) 980-6716. However, if you were to file bankruptcy, the soonest we can help you with any kind of loan would be one year after discharge or dismissal. Hope this helps a little bit.

      Thanks,
      Kevin

  2. Hi I filed chapter 7, 9 years ago. I did not reaffirm my mortgage and I’m just upside down with making any money off the house. I have voluntary been making payments. But I am just wanting to walk away. I have recently applied for a mortgage and was conditionally approved. Now I’m being told I have to include this mortgage as part of my debt? I don’t understand that.

    1. Hi Nicole:

      If you’ve been making the payments and living in the home, you might still be responsible. I would talk to your bankruptcy attorney if you can, but you’ve been living there and making the payments, so you may not just be able to walk away without taking a credit hit for the foreclosure. I would talk to your attorney.

      Thanks,
      Kevin

  3. Hello. We have been struggling with making our mortgage payment since Nov 2017. We are averaging 2 month’s behind and are considering bankruptcy. We definitely want to keep our house, but we need a month or two to “catch up”. Two months would be best so we can still eat, pay water, electricity, etc. We’ve only had the house for two years. Do you think a lien holder will allow me to file bankruptcy, not pay my mortgage for 3 months and at the time of bankruptcy settlement allow us to “clear the slate” and restart the clock and begin making payments again? Maybe add the missed payments to the end of the loan?

    1. Before you take a step as drastic as bankruptcy, I would recommend talking to your mortgage servicer. They may be able to help you with a temporary mortgage modification. While this does have a credit impact, it won’t be as bad as the bankruptcy. If you still need the bankruptcy due to other factors, I would work with your bankruptcy attorney to make sure that bankruptcy is structured in such a way that you can keep the house as long as you do what you need to do to get and stay current on the payments.

      Thanks,
      Kevin Graham

  4. I recently apply for chapter 7. I own my home and paying on time every month do a car accident became disable my kid move in and help me pay the morgage
    Do to a car accident and became disable obligated to close my busines. I dont own credicard but dr bills wish the car insurance was. Not paying had lawyers coming after me and the busines to i had in my credict and a loan not mine. Trying yo get rid of that will i keep my home were i live with my kids and gradkids wish i pay every month on time

    1. Hi Marilyn:

      It sounds like your situation is a bit complex. We really recommend you speak with an attorney who specializes in bankruptcy.

      Thanks,
      Kevin

    1. Hi Joseph. The short answer: yes. If you file for Chapter 7 bankruptcy, you will either be able to keep the property throughout the bankruptcy process or required to surrender the property or pay its value in cash as a part of the bankruptcy. If you file for Chapter 13 bankruptcy, you will not lose your property, but you will have to provide details on how you plan on paying your mortgage in your repayment plan. Either way, filing for bankruptcy is a big deal and affects you in many ways. The best thing to do is to discuss your options with a lawyer or your financial advisor before you stop making payments or file for bankruptcy. I hope this helps! – Allison Hendricks

    1. Hi Gloria:

      If you file chapter 13 and your house is included, there will be details in your bankruptcy plan as to how that debt is to be repaid and on what schedule. In terms of what happens after the bankruptcy, I recommend talking to a bankruptcy attorney.

      Thanks,
      Kevin Graham

  5. I am currently owe for Nov, Dec and now January which i will make one payment before the end of Jan. I’ve been trying to get my property prepared for me to move back into, i previously was renting it out n my last tenants i had to evict n redo my place. I can’t seem to catch up staying 2 months behind but im halfway there as far as moving back in. I want to keep it and i can definitely afford to. I already refinanced in the past with a home equity loan n of course i owe more than it’s worth. Should i file a chapter 13? Does it matter that i’m not physically back in the property yet?

    1. Hi Chrissy:

      If you’re considering filing bankruptcy, the best thing to do would be to contact a bankruptcy attorney. We can’t really give your advice on that. I don’t think it will matter in terms of the bankruptcy whether you’re in the property.

      Thanks,
      Kevin Graham

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