Bankruptcy is something that people wish to avoid at all costs. However, sometimes it becomes essential to file for bankruptcy if you wish to get rid of your debts. Before filing for bankruptcy, Los Angeles based bankruptcy law firm Recovery Law Group lawyers suggest that you should find out how personal bankruptcy chapters might affect your mortgage payments and future home financing requirements.
Personal bankruptcy filers have a choice between Chapter 7 and Chapter 13. The former is liquidation bankruptcy which gets rid of all unsecured debts, but you might have to sell your non-exempt property to pay off the creditors. it is also known as total bankruptcy (wipes out most debts) or straight-up bankruptcy (forgives your debts). The latter provides you with a chance to pay your creditors through a court-approved repayment plan. While some debts need to be paid in full, others are paid partially, and some can be discharged without paying anything.
Effect of Chapter 7 bankruptcy on mortgage
In chapter 7 bankruptcy, your property can be either exempted or non-exempted; in case of former, you can keep it free and clear. if it is the latter case, you might have to either surrender it or if you wish to keep it, then pay for the non-exempt part. However, you need to consult bankruptcy trustee for it. while providing you with a loan for purchasing your house, the mortgage companies have a lien on the property till the loan is paid. Filing for bankruptcy might get rid of the loan but not the lien the mortgage company has on your property. Thus, if you wish to keep your property free and clear, it is advised to pay your mortgage.
Once you have your chapter 7 discharge, you need to wait at least 2 years before you can be considered for finance. In case you find lenders willing to give you mortgage loan before this timeframe, be sure that the terms and conditions are in your interest.
Effect of Chapter 13 bankruptcy on mortgage
With automatic stay in place after the bankruptcy filing, you are assured of no foreclosure or repossession of property. You can repay your mortgage and even catch up on past lost payments through the repayment plan. Once you are through with your repayment plan (3-5 years), you must wait another year (exceptions for US veterans) before you can opt for a mortgage loan. If you get an offer before the said duration, be aware of the interest rate and conditions of the mortgage.
A bankruptcy filing is a decision that must be taken after considerable thinking. Consultation with qualified lawyers is advised before taking the plunge. You can call 888-297-6023 to schedule an appointment with bankruptcy attorneys.