Filing for bankruptcy may seem like a daunting experience if you don’t know what to expect. Even more discouraging is the idea of losing your home in the process. At Lerner and Rowe Law Group, we’ve handled thousands of Arizona bankruptcies and helped many more get a fresh financial start. Find out more about how to navigate bankruptcy and mortgage loans.
What Happens to My Mortgage if I File for Bankruptcy?
If you’ve been struggling financially for a long period of time, every aspect of your life may be affected. Perhaps you’re paying off credit card bills with more credit cards. It’s possible you’ve dipped into your 401K savings plan. Maybe you’ve fallen so far behind on your car payments that you’re facing repossession in Arizona.
It’s understandable to be concerned about what will happen to your mortgage loan if you file for a Chapter 7 or Chapter 13 bankruptcy. After all, home loans are often one of the biggest financial obligations we carry, and no one wants to lose their home.
There are several ways bankruptcy and mortgage loans can play out in the Arizona bankruptcy courts. This depends on many factors, like which bankruptcy you file for, the equity in your home, and the types and amounts of your other financial debts.
Will I Lose My House in a Chapter 7 Bankruptcy?
Chapter 7 bankruptcies are often called liquidation bankruptcies. In this type of bankruptcy, many of your assets can be liquidated (i.e., sold) to pay off your creditors and give you a clean, debt-free slate. Sometimes, this can include selling your home.
However, as noted above, many factors contribute to how a bankruptcy plays out. Not everyone who files for a Chapter 7 bankruptcy will lose their home. The Arizona Homestead Exemption can allow some homeowners to retain their house as a primary residence under certain circumstances.
What Is the Arizona Homestead Exemption?
Arizona’s Homestead Exemption is a law that protects up to $150,000 worth of equity in your home. General creditors will not have access to this equity for up to 18 months after a bankruptcy, even in a liquidation bankruptcy.
The homestead exemption applies to houses, mobile homes, condos, and land you own as long as the associated property acts as your primary residence.
To keep your home in a Chapter 7 bankruptcy using the Arizona Homestead Exemption, you’ll need to meet the following criteria:
- You haven’t fallen behind on mortgage payments
- You’ll be financially able to continue making payments after bankruptcy
- You don’t have a lot of equity in your home
What Happens to My Mortgage in a Chapter 13 Bankruptcy?
If you’re primarily concerned with keeping your home in Arizona after bankruptcy, filing for Chapter 13 bankruptcy may be the better option for you. You can continue making regular mortgage payments throughout the bankruptcy process. You may also be able to modify your mortgage into more affordable payments.
If you have fallen behind on mortgage payments, Chapter 13 can help you restructure your mortgage debts. Chapter 13 may also allow you to eliminate any second or third mortgages you’ve taken out against your home. This practice is often referred to as lien stripping.
What Happens if I Surrender My Home During Bankruptcy?
During the bankruptcy process, you may ultimately decide that you cannot afford to keep up with your existing monthly payments in the long-term. Alternatively, your outstanding mortgage balance may be more than what your house is worth. If this is the case, you have the option of surrendering your home in a Chapter 7 bankruptcy.
Keeping your home can be risky if you can’t guarantee you won’t fall behind on payments in the future. Lack of steady income, divorce, and other non-dischargeable debts such as student loans or child support can affect your ability to pay your mortgage each month.
When you choose to surrender your home during a Chapter 7 bankruptcy, your mortgage debt can be discharged completely, giving you a true fresh start.
Can I File For Bankruptcy After Foreclosure?
If your home has already been sold at a trustee’s sale or foreclosed and sold to cover your outstanding balance, a bankruptcy may still be able to help. Even after foreclosure, lenders may have the ability to charge you with a deficiency balance if your home sold at auction for less than what you owed on the mortgage loan.
By filing for a Chapter 7 bankruptcy after foreclosure, you may be able to completely discharge any outstanding deficiency balances in addition to unsecured debts and put a stop to harassing calls from creditors.
How Soon Can I Qualify for a Mortgage After Bankruptcy?
If you do surrender your home in a Chapter 7 bankruptcy, you may wonder how long it will take before you can take out another mortgage loan in the future.
Contrary to popular belief, filing for bankruptcy does not mean you’ll never own a house again. Bankruptcy itself is not a failure, but rather a positive step towards discharging or restructuring unmanageable debt and investing in your own financial future.
Although you may initially face higher interest rates while your credit score recovers, many lenders will still issue mortgage loans to those who have filed bankruptcy. You may be able to qualify for a mortgage loan in as little as one to four years after bankruptcy.
More Information About Bankruptcy and Mortgage Loans
If you have additional questions about bankruptcy and mortgage loans in Arizona, contact Lerner and Rowe Law Group. Our Arizona bankruptcy lawyers have the knowledge and skill to guide you in the right direction, whether you’re considering restructuring or discharging your debts. In addition, our affordable payment plans make financial freedom a possibility for almost any budget.
When it comes to getting out from under significant debt, time is of the essence. Start investing in your financial future today by contacting one of our offices located conveniently in Tucson and Phoenix. You can also reach us from anywhere in Arizona by calling 602-667-7777 . You can also speak with a representative now using our LiveChat service, or submit the details of your case online 24/7.