If I am keeping my family home and continue to make mortgage payments after filing for bankruptcy, does this mean my house is part of the bankruptcy?
One of the main reasons people file for bankruptcy is to protect their home from foreclosure. If you are in default with your mortgage, bankruptcy offers a few options. Depending on the amount of equity you have in your home, California law prevents the bankruptcy trustee from selling this asset to pay your creditors.
If your home is still secured by a mortgage, your mortgage lender is included as a creditor like any other when you file for bankruptcy. This means that, under the automatic stay, you are not obligated to continue making mortgage payments.
But, if you plan to keep your home, your mortgage will not be discharged with the other debts in your bankruptcy (as beneficial as bankruptcy can be, you cannot get a free house out of it). This means that, the automatic stay notwithstanding, your attorney will advise you to continue making payments throughout the process.
As confusing as this already is, mortgage lenders can further complicate the issue by requesting that you enter a “reaffirmation agreement.” In a reaffirmation agreement the debtor decides not to have a particular debt discharged by the bankruptcy, usually because they want to keep whatever property that is collateral for that debt.
Under California law these reaffirmation agreements only apply to personal property, not real property. But if your mortgage lender operates on a national level, they may not be aware of California law and may ask you to enter a reaffirmation agreement anyway, either soon after you file your bankruptcy petition or even years later. If this happens, you should ask your attorney what to do.
Have a specific question about your home mortgage in bankruptcy?
Stay tuned for more blog posts covering some of the other frequently asked questions about bankruptcy. We love sharing our expertise about bankruptcy so visit our Why Bankruptcy menu on our home page for more valuable information, including some of the FAQs and Dos and Don'ts we've already posted.
As always, and with all information on EnrightLawCenter.com, this should not be considered legal advice, and without a written agreement you have not established an attorney-client relationship. Every case is different and we highly recommend consulting with a bankruptcy attorney before taking any action.