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What Happens to My Mortgage When I File Bankruptcy?

What Happens to My Mortgage When I File Bankruptcy?

If you own a home and you file a chapter 7 or a chapter 13 bankruptcy, you will still owe on your mortgage, as long as you want to keep your home. 

Your mortgage company has to be careful to comply with the bankruptcy laws surrounding collecting a debt. They may suspend automatic payments or stop sending bills temporarily. This is because they can only accept voluntary payments, which of course you will want to keep making as long as you want to stay in your home. 

The mortgage company will also stop reporting to the credit bureaus. This is for both on time and late payments. You no longer will see your mortgage report on your credit reports, again so that the mortgage is complying with the bankruptcy laws. A lot of clients I work with don’t like this. They want credit for their ongoing payments. This can work in the debtors favor though. This is because you will no longer have a very large debt working against your credit to income ratio. Most people’s mortgages are in the six figures and removing this debt from your credit reports will cause your credit score to go up. 

The other option to get your mortgage reporting on your credit reports again would be to refinance in the future. Most people need to wait at least 1 year post bankruptcy to try to refinance. If you do successfully refinance, your mortgage payments will be again reported to the credit bureaus. Which could be good or bad, as missed payments will report again, and your credit to income ratio with be readjusted. 

Most important though is staying current on your mortgage payments through the bankruptcy and moving forward if you want to keep your home. 

If you have any questions on how your mortgage could be affected by a bankruptcy, just reach out! 

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