The effect of a Chapter 13 bankruptcy on a mortgage

Minnesota homeowners who are considering filing for Chapter 13 bankruptcy may wonder how it will affect their mortgages. First, those who are struggling to keep current with their mortgage payments should contact their lenders in order to see if it may be possible to work out a payment plan.

If forbearance or another form of modification is unacceptable to the lender, the homeowner may want to consider the option of filing for bankruptcy. The first thing that happens is an automatic stay meaning that the lender must wait for the completion of the automatic stay. The lender will also have to abide by the payment plan put together by the bankruptcy trustee.

If there is a second mortgage on the house and the individual owes more than the house is worth, the trustee can make the second mortgage an unsecured obligation, and the creditor may not receive the full amount. The trustee will put together a payment plan for the amount owed of either three or five years, and the payment plan will include the money owed up to that point along with any penalties. A missed payment might lead to removal of the automatic stay and foreclosure. However, before pursuing foreclosure, a lender might attempt to work out another payment plan.

An individual who is considering filing for Chapter 13 bankruptcy may wish to consult an attorney. The process of filing for bankruptcy and the accompanying paperwork can be complex, and an error might delay a filing. An attorney can explain the eligibility requirements and then guide a client through the process and help to ensure that all documentation is correct.

Source:, "What Do Mortgage Companies Do With Chapter 13 Bankruptcy?", M.C. Postins, accessed on Jan. 10, 2015

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