Bankruptcy Rules For Mortgages

The basic bankruptcy rules for mortgages are the same for both types personal bankruptcy - Chapter 7 bankruptcy or Chapter 13 bankruptcy. However, Chapter 13 bankruptcy has additional rules which may help debtors.

First, there are two fundamental bankruptcy rules which apply to mortgages:

Rule 1. Secured debt such as a mortgage on a home must be paid or else the secured creditor may seek to enforce its' secured interest and obtain the property (ex. house).

When you obtain a home loan, you put you house up a collateral by giving your lender either a mortgage or deed of trust. If you do not pay, then your home lender may foreclose and seek to obtain legal title to your house. Bankruptcy rules do not change the mortgage foreclosure process. Instead, bankruptcy rules actually confirm the foreclosure process by saying that you pay secured loans or lose the property which secures the loan. (There are exceptions for personal property, but not real property.)

Rule 2. When you file personal bankruptcy, there is an automatic temporary stopping of civil legal actions to collect most debts. This rule is called an "automatic stay".

When your house mortgage is not paid, your mortgage lender will start foreclosure proceedings to enforce its' claim to your house. This foreclosure process is a civil legal matter, and, as such, it is subject to the "automatic stay" bankruptcy rule. To proceed with the foreclosure action, your mortgage lender will have to ask the bankruptcy court for permission by asking that the "automatic stay" be lifted.

While the above two bankruptcy rules apply to all bankruptcies, there are additional rules which apply to a Chapter 13 bankruptcy.

Since Chapter 13 is basically a bankruptcy court ordered payment plan, the rule is that you must continue to pay your monthly mortgage payments as long as your payment plan is in effect. If you do not pay your monthly payments, your mortgage lender can and will ask that the "automatic stay" be lifted so that your lender can proceed with foreclosure.

The Chapter 13 bankruptcy rule which helps most with mortgage foreclosure is the rule which allows you to pay the mortgage arrears over a period of time. Often, when people get behind on their mortgage payments, their mortgage lender requires a lump sum payment of the arrearage. And, most people cannot come up with the lump sum amount. Under Chapter 13 rules, a person can pay the arrearage over a period of time, normally 3 or 5 years. This makes it much easier for them to make monthly payments and to keep their home.

There are other minor rules such as how you make your payments, but the above are the major bankruptcy rules for mortgages.

This is general information. If you need specific information or have any questions of any nature whatsoever, talk with a lawyer licensed in your state.

For more general information, see Bankruptcy. For more detailed information see bankruptcy information.

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