Mortgage & Bankruptcy Discharge
Mortgage loans are common, but complicated, lawful contracts. A mortgage loan is much more than a simple promise to refund cash. Because of the complex nature of the mortgage, neither Chapter 7 nor Chapter 13 bankruptcy effectively discharges a mortgage loan. This means that bankruptcy doesn’t enable you to maintain your house without continuing to cover the mortgage loan.
Types
Individual debtors can file two different kinds of bankruptcy, including Chapter 7 and Chapter 13. The release rules under Chapter 7 vary from the release rules under Chapter 13. Thus, Chapter 7 and Chapter 13 have various effects on a mortgage loan.
Mortgage Definition
A mortgage is a two-part lawful arrangement. The first portion of the mortgage is a promissory note under which the borrower promises to repay the sum borrowed. The next portion of the mortgage record is a mortgage or deed of trust, also known as the security instrument. The security instrument gives the mortgage lender a lien on your house or other real estate, and the lender can foreclose on your house if you default beneath promissory note.
Discharge Generally
The bankruptcy discharge will eliminate your individual liability on the promissory note. However, as the lien is not discharged, you can still lose your house when you don’t timely make your mortgage payments. The mortgage lien consistently survives bankruptcy, so you’re constantly subject to foreclosure if you default under the security device.
Chapter 7
Chapter 7 will release any of your private responsibility on the mortgage. This means that you can’t ever be liable to the lender to get a deficiency judgment. A lack happens when the lender forecloses on the house and the sales cost in foreclosure is not sufficient to satisfy the full balance owed to the mortgage. Without bankruptcy, you could be liable for this lack, however under Chapter 7 you won’t ever be liable for this lack.
Chapter 13
Chapter 13 bankruptcy won’t discharge the mortgage lien or your own private obligation on the mortgage. Chapter 13 is a procedure that allows you to consolidate your debt and pay it off within three to five decades. But, long-term obligations such as a mortgage are generally part of their Chapter 13 repayment plan, which signifies a Chapter 13 generally won’t release anything linked to the mortgage loan. Even if the mortgage loan is contained in your repayment program, however, this still doesn’t remove the mortgage lien, which means you are still subject to foreclosure if you don’t repay the mortgage even after Chapter 13 bankruptcy.
