If you are thinking about going through the bankruptcy process, you are probably taking a closer look at what kind of debt you have and whether or not it can actually be wiped out during Chapter 7 or Chapter 13 bankruptcy. One kind of debt we get a lot of questions about is mortgage debt. Is it secured or unsecured? Can you prevent foreclosure by going through bankruptcy? A New City bankruptcy attorney from our firm can answer your questions.
Why is a Mortgage Secured Debt?
A mortgage is what’s called a secured debt because it is backed up by collateral. In this case, the collateral is your home. It can be easier to get approved to take on secured debt because there is something to take from you if you do not make your payments. The bank can foreclose on your home and take it back from you.
An unsecured debt is not backed up by anything. Credit card bills and student loans are good examples of this. There is nothing backing these up, so if someone does not pay them the lender does not have anything to take back. They can ask the debtor to make good on their bills or send the money owed to collections, but that’s about it.
Is a Second Mortgage Also Secured Debt?
Sometimes people take out a second mortgage, which is a loan that uses their home equity. This loan is also going to be considered a secured debt. The house is still backing up these debts. Fail to pay off your second mortgage, and you can end up losing your home.
What About Home Refinances or Home Equity Loans?
Home refinances are just a new home loan, so it’s secured debt. Owners can do this when they want to get a lower rate or change up other terms of their own. They could, for example, switch from a 30-year mortgage to a 15-year one.
Home equity loans are often called second mortgages, so the same rules apply here. It’s still a secured debt.
Do I Still Need to Pay My Mortgage in Bankruptcy?
If you are looking at your current debts and believe that going through bankruptcy is your best option, you may wonder what happens to your mortgage. That can depend on a number of factors, including your income and what chapter of bankruptcy you choose.
In Chapter 7 bankruptcy, if you are caught up on payments before filing and you will continue to make them, then you can probably keep your home. You can also decide not to pay the mortgage, giving the lender the right to foreclose.
In Chapter 13 bankruptcy, you can keep making mortgage payments as a part of your general plan to pay off creditors. You could also end up getting foreclosed on if you do not make payments on time.
Talk to Our Bankruptcy Attorneys
If you do not think that you can get yourself out of debt, declaring bankruptcy might be your best option. Schedule an appointment at the Lauterbach Law Firm and talk to our attorneys. We can help you evaluate your debt load and figure out the best path forward.
