Chapter 7 Bankruptcy and Mortgage

We know filing for chapter U.S. bankruptcy code is the last choice by any individual. However, the purpose of filing under chapter not only to pay back the debt after liquidation of the property, but also to gain some time to bring back your life on track.

When a person files for bankruptcy under chapter /she gets an automatic stay that helps him to stop any foreclosure procedure on the house of the debtor.

Basically a debtor has two options when he files for chapter 7:

Either he has to surrender his home to the creditor and get discharge from the future liabilities of the mortgage; or The debtor can keep hold of his home and repeat the mortgage. For this he will have to make regular payment to the creditor. In case a debtor reaffirms the debt, he is basically making an exemption of that particular debt from the bankruptcy process. However, for this he needs to fill in the supporting form and submits it in the bankruptcy court, also he needs to sign the reaffirmation agreement. This way he is agreeing to keep the loan and is liable to pay back to the creditor.

There are certain steps to be performed in case the debtor is keen to reaffirm the mortgage:

-- He needs to stay on the current mortgage.

-- He has an option to come back to the current mortgage after few weeks of filing of the bankruptcy.

-- He can work on the new repayment schedule with the lender either before or after the filing of the bankruptcy under chapter 7.

However, there are chances that a debtor may not be allowed to retain the home in case the court finds that the mortgage is offending or the debtor needs to work out a strategy with the lender. In case the mortgage is delinquent when the debtor files for bankruptcy under chapter the debtor does not work it out with the lender. In that case a lender can file for relief from the automatic stay and then he gets the permission to continue with the foreclosure proceedings.

There are few rules that pertain to mortgage after the filing of the bankruptcy. There it becomes difficult for a person to get new mortgage for a house that he wants to buy. However, there are various ways that can help them to do so and one of the hurdles is that you will have to pay a bigger amount of rate of interest.