The possibility of losing a home is a common concern for people who are behind on a mortgage and considering filing for bankruptcy. California’s bankruptcy process may provide an avenue for people who are behind on payments to keep their homes.
Homeowners may also be able to enter into a new payment schedule to get back on track. Here are some important things to know about how bankruptcy affects a mortgage and homeownership.
Chapter 7
Typically, filing for bankruptcy under Chapter 7 discharges many forms of debt, but it involves a liquidation of assets to pay creditors. It may be possible to keep your home if you have a declaration of homestead. However, that depends on how much equity you have in it and whether its resale would generate enough income to pay outstanding obligations.
If bankruptcy discharges any debt that you have on your home, it discharges only your obligation to pay and not the mortgage itself. Anyone buying the property would take title subject to the outstanding mortgage.
Chapter 13
It may be advantageous for people who are only slightly behind on mortgage payments to file for bankruptcy under Chapter 13. This route gives mortgagors the opportunity to catch up on arrears with a payment plan. While you pay arrears in monthly installments, you must also stay current with ongoing payments.
The right bankruptcy option to help you keep a home that you have mortgaged depends on your individual circumstances. Key factors include your home’s debt to equity ratio as well as the total value of all of your assets.
