What Happens to Your Mortgage in Bankruptcy in California?

Filing for bankruptcy is a significant decision, and for many individuals in California, it raises questions about their mortgage obligations. Understanding how bankruptcy affects your mortgage is crucial to navigating this challenging financial landscape.

When you file for bankruptcy in California, you typically undergo one of two types: Chapter 7 or Chapter 13. Each type has different implications for your mortgage, so it's essential to understand the basics.

Chapter 7 Bankruptcy and Mortgages

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows debtors to discharge unsecured debts. However, this process has specific implications for secured debts, such as a mortgage. In California, your home is considered a secured asset, meaning the mortgage lender has a legal claim to the property if payments are not made.

If you're current on your mortgage payments when you file for Chapter 7, you can often maintain your home and continue making payments. However, if you're behind on payments, the lender may begin foreclosure proceedings. While bankruptcy can temporarily halt foreclosure through the automatic stay, it does not erase the mortgage debt.

Chapter 13 Bankruptcy and Mortgages

Chapter 13 bankruptcy, or reorganization bankruptcy, is designed for individuals with a regular income who can pay back part of their debts over time. This type of bankruptcy allows you to keep your home, even if you're behind on mortgage payments. You must create a repayment plan to catch up on missed payments, typically over three to five years.

In Chapter 13, your mortgage lender cannot foreclose on your property so long as you adhere to the repayment plan approved by the bankruptcy court. This gives you the opportunity to reclaim your financial footing while keeping your home.

Reaffirmation Agreements

In both Chapter 7 and Chapter 13 bankruptcies, you have the option to reaffirm your mortgage, which means you agree to continue being liable for it despite the bankruptcy discharge. This agreement ensures you keep your home and reinforce your obligation to repay the mortgage.

What to Do After Filing for Bankruptcy

After filing for bankruptcy, it’s essential to stay informed about your mortgage company’s requirements. Continue making regular mortgage payments to avoid complications. If you're unsure about your abilities to manage your mortgage post-bankruptcy, consider consulting with a financial advisor or a bankruptcy attorney to understand your options better.

Conclusion

Understanding how bankruptcy impacts your mortgage is vital for anyone going through financial hardship in California. Whether you choose Chapter 7 or Chapter 13 can significantly affect your ability to keep your home. Carefully consider your situation and explore your options thoroughly, ensuring you have the necessary support to make informed decisions about your financial future.

By staying informed, you can navigate the complexities of bankruptcy and take proactive steps toward recovery.