How Chapter 13 Bankruptcy Affects Your Mortgage

by
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC

“If I file for Chapter 13 bankruptcy, do I have to make my mortgage payments?”

Yes, you must continue making your mortgage payments in a Chapter 13 if you want to keep your home. However, for some second mortgages, under certain circumstances you might not have to pay them.

“What if I am behind on my mortgage payments when I file Chapter 13?”

Chapter 13 allows you to make up your back payments in your repayment plan, which usually lasts three to five years. This long period makes it easier for you to catch up on missed payments. Remember, however, that if you want to keep your home inside Chapter 13, you must make on-time payments and meet other mortgage commitments.

“Do I have to make my regular house payments during Chapter 13 bankruptcy?”

Absolutely. If you default on your ongoing house payments, your lender can foreclose on your home. This is because your bankruptcy discharge does not erase your lender’s first mortgage. However, you may not have to make payments when you are removing a completely unsecured second mortgage or other lesser lien from your property.

“Is it different if I am removing or stripping my second mortgage?”

Yes. If your first mortgage balance is more than the value of your home, you may be able to erase your second mortgage in Chapter 13 through a process called lien stripping.

When your second mortgage is stripped, the lien is erased and it becomes an unsecured debt with no greater priority than credit card bills or medical bills. Since your second mortgage lender becomes an unsecured creditor, you do not need to make payments on your second mortgage during Chapter 13 bankruptcy.

However, if you are not removing your second mortgage, then you must keep paying it just as you are your first mortgage.

During my Chapter 13 bankruptcy, what happens if I don’t make my house payments?

When you file bankruptcy, the court issues an automatic stay that forbids your lender from foreclosing on your property. However, if you don’t continue to make your house payments, the lender can file a motion with the court and ask that the stay be removed. This then allows the lender to foreclose on your home. So bankruptcy won’t protect your home unless you continue to make your house payments.

“After my Chapter 13 Bankruptcy ends, do I have to keep making my mortgage payments?”

Yes. The only reason you would not have to keep making house payments is if you had a second or other junior mortgage stripped from your property. But when your Chapter 13 repayment plan ends, your first mortgage is still in place and you must keep making house payments if you want to keep your home.

If you have any questions about Chapter 13 bankruptcy or mortgage loans, you’re invited to call me at 312-969-0730.