Can You Discharge Mortgage Debt Through Bankruptcy in Pennsylvania?

Discharging mortgage debt through bankruptcy is a significant consideration for many homeowners facing financial challenges in Pennsylvania. Understanding how bankruptcy affects mortgage debt can help you make informed decisions regarding your financial future.

In Pennsylvania, individuals can file for either Chapter 7 or Chapter 13 bankruptcy, both of which have different implications for mortgage debt.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows individuals to eliminate most unsecured debts, including credit card debt and medical bills. However, when it comes to mortgage debt, the situation is a bit different. In most cases, you can discharge your personal liability on the mortgage, but the lender still has the right to foreclose on the property. This means that while you may no longer be responsible for the mortgage payments, the lender can still take back the house if payments are not made.

If you want to keep your home during Chapter 7 bankruptcy, you need to continue making your mortgage payments. This option, known as reaffirmation, allows you to retain ownership of the home while remaining liable for the mortgage. Therefore, it is crucial to weigh the pros and cons before deciding on this route.

Chapter 13 Bankruptcy

In contrast, Chapter 13 bankruptcy is designed for individuals with a regular income who wish to reorganize their debts. Under this chapter, you can create a repayment plan that allows you to catch up on missed mortgage payments over a period of three to five years. This process can help you avoid foreclosure and keep your home while discharging unrecoverable debts.

One significant advantage of Chapter 13 bankruptcy is the “automatic stay,” which halts foreclosure proceedings as soon as you file. This gives you breathing room to work out a repayment plan with your creditors, including your mortgage lender. Additionally, you may be able to reduce the total amount owed if your property value has decreased.

Considerations for Homeowners

It’s essential to consider your overall financial situation before filing for bankruptcy in Pennsylvania. The impact on your credit score, the duration of the bankruptcy process, and the long-term financial implications must all be examined. Speaking with a qualified bankruptcy attorney can provide valuable insights tailored to your specific circumstances.

Conclusion

In Pennsylvania, while you can discharge mortgage debt through bankruptcy, it does not automatically guarantee the retention of your property. Understanding the differences between Chapter 7 and Chapter 13 bankruptcy is crucial in making the best choice for your financial health. Always consult with a professional to navigate the complexities of bankruptcy law and ensure that you protect your rights and assets effectively.