If you want to keep your home during Chapter 13 bankruptcy, you must make your regular mortgage payments as they come due. If you have a second mortgage, however, under certain circumstances you might not have to pay it outside of bankruptcy.
Read on to learn more about whether you have to pay your mortgage in Chapter 13 bankruptcy. (Learn more about what happens to your home in Chapter 13 bankruptcy.)
If you are behind on your mortgage payments, Chapter 13 bankruptcy can allow you to pay off your arrears in your Chapter 13 plan and save your home. Because Chapter 13 plans typically last three to five years, they make it affordable for debtors to catch up on their missed payments by stretching their arrears over a long repayment period. (Learn more about the Chapter 13 bankruptcy repayment plan.)
But keep in mind that if you want to keep your home in Chapter 13 bankruptcy, you must make timely plan payments and continue to pay your ongoing mortgage obligations (discussed below).
In most cases, your mortgage lender has a lien on your property that allows it to foreclose on your house if you default on your payments. Unless you are stripping (removing) a wholly unsecured second mortgage (or other junior lien) from your property, your discharge doesn’t eliminate the mortgage lender’s lien on your home. This means that if you want to keep your home, you must make your regular mortgage payments during bankruptcy.
Who do you make your mortgage payment to? In most bankruptcy jurisdictions, you simply continue to pay your mortgage directly to your lender outside of bankruptcy. But some courts require debtors to send their mortgage payments to the bankruptcy trustee as part of their Chapter 13 plan. Before you file your case and propose a repayment plan to the court, talk to a bankruptcy attorney in your area or research the rules in your jurisdiction to learn more about how your bankruptcy court treats mortgage payments in Chapter 13 bankruptcy.
If the balance on your first mortgage (or other senior liens) is greater than the value of your house, you may be able to get rid of your second mortgage (or other junior liens) in Chapter 13 bankruptcy through lien stripping. (Learn more about stripping your second mortgage in Chapter 13 bankruptcy.)
When you strip your second mortgage, the lien will be eliminated when you complete your bankruptcy and the debt becomes unsecured (like your credit cards and medical bills). Because your second mortgage lender is treated as an unsecured creditor and its lien will be eliminated when you complete your plan and obtain a discharge, you don’t have to make your second mortgage payments during bankruptcy.
If you are not stripping your second mortgage, you have to continue paying it during your bankruptcy if you want to keep your home.
When you file for Chapter 13 bankruptcy, an automatic stay goes into effect that prohibits your mortgage lender from initiating or continuing foreclosure proceedings against your property. But if you don’t make your ongoing mortgage payments, your lender can file a motion with the court and request that the automatic stay be lifted.
This means that simply filing for Chapter 13 bankruptcy but not making your ongoing mortgage payments won’t help you keep your home. (Learn more about when a creditor can lift the automatic stay.)
Unless it was a junior mortgage lien that you eliminated through lien stripping, completing your Chapter 13 repayment plan and getting a discharge doesn’t get rid of your mortgage lender’s lien on your home. This means that if you want to keep your home, you still have to pay your mortgage even after you pay off your Chapter 13 plan and obtain a discharge.
by: Baran Bulkat, Attorney