The goal of filing bankruptcy is to discharge unsecured debts so that the person who has previously been struggling with debt can get into a better financial situation. Unsecured debts, like credit card bills and unpaid medical costs, will no longer require repayments thanks to that discharge, but not all of your debts will get included in your discharge.
Secured debts, meaning debts that have physical property as collateral, generally don’t just go away when you file for bankruptcy. In some cases, the person filing may feel like the best solution is to surrender the collateral property and walk away with a clean slate. Other times, they want to retain the collateral property, which requires that they look closely at their mortgage or car loan.
What can you do with your mortgage during a bankruptcy filing?
You can reaffirm the debt in order to maintain your terms
Maybe you locked in an incredible interest rate that you would no longer qualify for because of credit issues, or perhaps you don’t feel worried that the terms of your mortgage will impact your ability to continue paying on your home.
You can potentially reaffirm your existing mortgage and execute new paperwork with your lender that will allow your existing mortgage to persist even after your bankruptcy discharge.
You may have an opportunity to renegotiate your mortgage
Keeping your family home and maintaining the equity you have built in it may be a priority for you during bankruptcy. The good news is that filing for bankruptcy puts you in a position to negotiate with your lender, especially if you file for Chapter 13 bankruptcy.
Particularly for those who have fallen behind on their mortgages or who have a balloon payment due in the future, renegotiating the terms of a mortgage can be beneficial. A renegotiated mortgage can also benefit the lender because instead of the costs associated with foreclosing on the home and needing to list and then sell the property, they can expect to continue collecting payments without any of the expenses or risks involved in foreclosure.
Renegotiating a mortgage or even reaffirming can have long-term financial implications, which is one reason why many people considering bankruptcy will want to speak with an attorney specifically familiar with real estate contracts in order to optimize the outcome of their bankruptcy filing and protect their homeownership.