Bankruptcy with a Mortgage in New York

A common question among homeowners contemplating Chapter 7 or Chapter 13 bankruptcy is whether one’s mortgage may be kept upon filing. The answer to this question depends on the type of bankruptcy for which one files. Below is an overview of the ways in which Chapter 7 and Chapter 13 bankruptcy address mortgage issues.

Chapter 7 Bankruptcy

Under Chapter 7 bankruptcy, most or all of a filer’s debts are dischargeable. However, Chapter 7 bankruptcy also allows a bankruptcy trustee to sell a debtor’s nonexempt property in order to pay his or her unsecured creditors. Therefore, if one’s home contains a significant amount of non-exempt equity, the trustee will sell it.

Chapter 7 bankruptcy does, however, allow exemptions for certain qualifying types of property. For example, if a debtor’s home qualifies for an exemption, then he or she may continue to make mortgage payments on the same while continuing to live in the property. It is important to remember, though, that although bankruptcy discharges a debtor’s personal liability for his or her mortgage at the end of the bankruptcy case, payments must continue to be made by the borrower or the property can be foreclosed by the lender.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy requires debtors to repay their creditors through a Chapter 13 repayment plan, and this repayment option extends to one’s home mortgage. After filing for Chapter 13 bankruptcy, debtors are permitted to continue making mortgage payments. So, if a debtor has fallen behind on mortgage payments, he or she has the option of paying off the outstanding amount via the aforementioned Chapter 13 repayment plan. Under a Chapter 13 repayment plan, as long as a debtor’s mortgage payments are kept current, the lender cannot foreclose.

In addition to the above advantages of filing for Chapter 13 bankruptcy, filers can sometimes modify a mortgage in order to make the new principal equal the actual value of the leveraged home. However, this option is not available for a mortgage secured by a debtor’s residence. Chapter 13 mortgage modification is only available for the following types of mortgages:

• Loans obtained to purchase buildings or lots that are not a part of a debtor’s primary residence, such as farmland;
• Loans obtained to purchase a multi-unit building, such as an apartment;
• Loans secured by property other than one’s primary residence; and
• Loans are obtained to purchase a mobile home that is the personal property and residence of a debtor.

Legal Representation in New York

If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in New York, please contact an attorney to discuss your situation. An experienced New York Chapter 7 or Chapter 13 bankruptcy attorney will keep you apprised of your rights while ensuring that you understand all of your debt relief options. Please contact us for a free consultation.