What Happens to Your Mortgage After Bankruptcy in Pennsylvania?
Bankruptcy can be a daunting process, especially for homeowners in Pennsylvania who may be concerned about the future of their mortgage. Understanding what happens to your mortgage after bankruptcy is crucial for making informed decisions. In Pennsylvania, there are specific laws and regulations that impact how mortgages are handled during and after bankruptcy. This article breaks down the key aspects you need to know.
When a homeowner files for bankruptcy in Pennsylvania, it typically involves either Chapter 7 or Chapter 13 bankruptcy. Each of these bankruptcy types treats mortgages differently.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, your non-exempt assets are liquidated to pay off creditors, while most unsecured debts, like credit cards, are discharged. If you are behind on your mortgage payments, you may choose to surrender the property and let the lender foreclose on it. Once the bankruptcy is finalized, the mortgage debt is wiped out, and you are no longer responsible for payments on the mortgage. However, this also means losing your home.
If you want to keep your home, you must continue making mortgage payments after filing for Chapter 7. The bankruptcy will delay foreclosure actions, giving you some time to catch up on missed payments, but it does not eliminate your obligation to pay the mortgage.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often called a reorganization bankruptcy. It allows individuals to create a repayment plan to pay back some or all of their debts over three to five years. For homeowners, this type of bankruptcy can be beneficial since it allows you to keep your home even if you are behind on your mortgage payments.
In Chapter 13, you can include your mortgage arrears in your repayment plan, which helps to bring your mortgage current. The lender cannot foreclose on your home during the repayment period, provided you adhere to the terms of your plan. This is particularly advantageous for those who have fallen behind due to temporary financial difficulties, as it gives them a chance to stabilize their finances while keeping their property.
Impact on Credit Score
Filing for bankruptcy will significantly impact your credit score. A Chapter 7 bankruptcy remains on your credit report for ten years, whereas Chapter 13 stays for seven years. This can affect your ability to refinance your mortgage or obtain new credit in the future. However, maintaining consistent mortgage payments during and after bankruptcy can help rebuild your credit over time.
Potential Outcomes After Bankruptcy
After bankruptcy, homeowners in Pennsylvania may face a few scenarios regarding their mortgage:
- Retention of Home: If you successfully keep up with mortgage payments post-bankruptcy, you can retain your home, particularly under Chapter 13.
- Foreclosure: If you choose not to reaffirm the mortgage loan in Chapter 7 or fail to keep up with payments, foreclosure may occur.
- Modification: Some homeowners may seek to modify their mortgage terms after bankruptcy, possibly resulting in lower payments or interest rates.
Consult a Professional
It's essential to consult with a bankruptcy attorney in Pennsylvania to understand your rights and the implications of filing for bankruptcy on your mortgage. They can provide tailored advice based on your specific financial situation and help you navigate the complex legal landscape following bankruptcy.
In conclusion, your mortgage situation after bankruptcy in Pennsylvania largely depends on the type of bankruptcy filed and your ability to maneuver within the repayment plans and legal frameworks available. Staying informed and seeking professional guidance is key to preserving your home and financial well-being.