What You Should Know About Bankruptcy and Your Mortgage in California
Bankruptcy can be a complicated process, especially when it comes to handling your mortgage in California. Understanding how bankruptcy affects your mortgage is crucial for homeowners who find themselves in financial distress. Here’s an overview of what you should know.
Types of Bankruptcy
In the United States, there are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows for the discharge of unsecured debts, while Chapter 13 involves reorganizing debts and creating a repayment plan over three to five years. The choice between the two will largely depend on your financial situation, including your mortgage obligations.
Impact of Bankruptcy on Your Mortgage
When filing for bankruptcy in California, your mortgage may be affected in several ways. Primarily, both Chapter 7 and Chapter 13 bankruptcy will trigger an automatic stay, halting foreclosure proceedings temporarily. This provides you with some breathing room to assess your financial condition and explore your options.
With Chapter 7, homeowners may choose to surrender their property to the lender. This means you will stop making mortgage payments, and the lender can foreclose on the home. However, if you want to keep your home, it’s essential to continue making payments, as bankruptcy does not eliminate the mortgage obligation.
On the other hand, Chapter 13 bankruptcy allows you to catch up on past-due payments through a repayment plan while you keep your home. This option may be beneficial if you have fallen behind on your mortgage but still want to retain ownership of your property.
Staying Current on Mortgage Payments
Regardless of the bankruptcy chapter filed, staying current on mortgage payments is crucial to keeping your home. In Chapter 13, missed payments can jeopardize the repayment plan, leading to potential dismissal of the bankruptcy case. Hence, it is vital to adhere to the repayment schedule while also making your regular mortgage payments.
What Happens After Bankruptcy?
After successful completion of a Chapter 7 or Chapter 13 bankruptcy, your debts are discharged, but your mortgage isn't automatically erased. If you’ve opted for Chapter 13 and have managed to catch up on your payments, you can continue residing in your property. Bankruptcy, however, might impact your credit score and future borrowing capabilities. Lenders may view bankruptcy as a significant risk factor, making it more challenging to secure loans in the future.
Consulting a Bankruptcy Attorney
Before making any decisions related to bankruptcy and your mortgage, it is advisable to consult with a qualified bankruptcy attorney. They can provide guidance on how to navigate the complexities of bankruptcy law in California, help you choose the right chapter for your situation, and develop a strategy that aligns with your financial goals.
Conclusion
Understanding your rights and responsibilities when facing bankruptcy can help you make informed decisions regarding your mortgage. Whether you choose to file for Chapter 7 or Chapter 13, knowing the implications of each can aid you in protecting your home and achieving financial stability in the long run.