Should I Still Pay My Mortgage if I'm Filing for Bankruptcy?

If you file for bankruptcy and want to keep your home, you must continue making regular mortgage payments. Read on to learn more about what happens if you don’t pay your mortgage in bankruptcy.

Paying Your Mortgage and Keeping Your Home

A bankruptcy discharge is designed to wipe out your liability for most types of debt, including mortgages. However, it doesn’t automatically eliminate liens from your property. A mortgage lender’s lien, and the right to foreclose on your house that comes with the lien, survives bankruptcy.

Because the lien remains, you must pay your mortgage during and after bankruptcy if you want to keep your home. If you file for Chapter 7 bankruptcy, you'll also want to be current on the mortgage when you file. Otherwise, the lender can ask the court to lift the automatic stay and allow foreclosure.

You can use Chapter 13 bankruptcy to keep your house when you're behind on your mortgage because you can catch up on payments through the Chapter 13 plan. Also, if your house is worth less than you owe, you might be able to eliminate one or more junior mortgages or a HELOC in Chapter 13.

Eliminating a Mortgage Lien in Bankruptcy

If the amount you owe on your home exceeds its value, you can use the Chapter 13 lien-stripping process to eliminate any junior mortgage or HELOC that wouldn't receive any payment after a home sale. These obligations would be considered "wholly unsecured."

During the Chapter 13 case, you'll only make monthly mortgage or HELOC payments on loans not subject to a lien strip. Lien-stripped loans are paid along with other debts in the lowest payment priority category that must share whatever funds remain after higher priority debts are paid.

Learn more about removing a second mortgage in bankruptcy.

Consequences of Not Paying Mortgage Payments

When you file for bankruptcy relief, the automatic stay prohibits your mortgage lender from foreclosing on your home. But if you don’t pay your mortgage, your lender can file a motion asking the court to lift the stay so that it can initiate or continue the foreclosure process.

This usually happens only in Chapter 7 cases because, in Chapter 13 cases, the filer surrenders the house or makes provisions to keep it by catching up on payments through the Chapter 13 plan. However, the lender might bring a motion if the Chapter 13 filer stops making the mortgage payment during the plan.

In Chapter 7, the bankruptcy court grants most motions to lift the automatic stay for lack of payment unless the Chapter 7 trustee intends to sell the home for the benefit of creditors. This occurs because Chapter 7 doesn't have a provision allowing a filer to catch up on arrears over time, and, as a practical matter, Chapter 7 filers don't have the funds to bring loans current in short order. Chapter 7 filers who want to keep a home ensure the mortgage is fully paid before filing when they have the means to do so.

Learn about all the requirements a filer must meet to keep a home in Chapter 7 bankruptcy.