Can Bankruptcy Eliminate Mortgage Lien And Arrears?

Chapter 7 and Chapter 13 bankruptcy are two types of personal bankruptcy. They vary in how they wipe out debt. Consequently, the effects of bankruptcy on a mortgage loan vary.

Mortgage loans are complicated legal agreements. They are a lot more than just an assurance to repay a loan. For this reason, filing for bankruptcy will not discharge mortgage debt while allowing you to keep the property. However, you may be able to stop a property foreclosure or repossession through the bankruptcy process.

There are two parts of a mortgage contract. The first part of the deal is a promissory note to which a borrower formally makes a promise to repay the amount of money borrowed under the terms given. The other aspect of the deal is a deed of trust, called security instrument. If ever a borrower fails to satisfy the conditions of a mortgage loan agreement, the lender is allowed to take action against the secured home or property of a borrower.

Bankruptcy will wipe out your legal responsibility on a promissory note. However, this does not mean that you can keep your house or property despite of unpaid mortgage. A mortgage cannot be discharged in any kind of bankruptcy cases.

A Chapter 7 bankruptcy may eliminate an accountability to pay off a mortgage loan. You will never be sued for a mortgage deficiency in a Chapter 7 bankruptcy. In foreclosure, a deficiency judgment is a court ruling which makes you accountable to a mortgage loan balance when a property's price is not enough to pay for a mortgage loan. Without bankruptcy, you could be sued by your mortgage lender for your debt. A Chapter 7 bankruptcy may also remove an existing deficiency judgment.

On the other hand, filing for a Chapter 13 bankruptcy will not remove a mortgage lien or your obligation on a mortgage loan. This is because you will be required to repay some or all debts in a Chapter 13 procedure. Long-term financial obligations, like mortgage loans, are often excluded in a Chapter 13 repayment plan. This implies that any debts associated with a mortgage loan will not be wiped out in a Chapter 13 bankruptcy. However, you can cure mortgage arrears using Chapter 13 bankruptcy. Under the current bankruptcy laws, bankruptcy can cure mortgage arrears. Bankruptcy laws may even give protection against a property foreclosure or repossession. This does not mean, however, that when a mortgage debt becomes part of a repayment plan the mortgage lien is eliminated. A creditor can still go forward with property foreclosure or repossession if you do not make the payments according to the repayment plan.

In bankruptcy law, things are not always what they seem. A typical cause of confusion among bankruptcy filers concerns what will happen to secured debts that have liens against property they owned after a debt discharge is granted. To make sure that you understand the laws before you file bankruptcy, you should get advice from an experienced San Antonio Bankruptcy Lawyer.