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Chapter 7 Discharge and Mortgage Payments

Chapter 7 New York bankruptcy is usually used by people with significant unsecured debts and little reliable income to repay them. Homeowners filing chapter 7 usually intend to stay in their homes or at most discharge a mortgage deficiency after selling them. Sometimes a domestic partner is eligible for chapter 7 because he or she doesn’t work while the other spouse owns the home. In other circumstances, the homeowner can afford the mortgage payments but qualifies for chapter 7 due to his or her low income.

For those types of homeowners, there are a few things to keep in mind:

(1)  As always, the discharge order applies to the mortgage, but because the property secures the mortgage the lender can foreclose on the house if the debtor doesn’t pay after bankruptcy. The lender isn’t allowed to take any other kind of action, like suing the debtor for a mortgage default. It can only take the home.

(2)  For homeowners with underwater junior mortgages, a successful chapter 13 bankruptcy after the chapter 7 case can release the lien, allowing the homeowner to stop paying on the affected mortgages. Sometimes that’s a good idea, but it depends on the debtor’s situation, as discussed here.

(3)  Homeowners who want to remain in the residence have two options: “ride through” the mortgage as though the discharge hadn’t occurred or sign a reaffirmation agreement before the discharge is entered and promise to resume payments. The benefits of signing a reaffirmation agreement before the discharge is that it takes the home out of the bankruptcy estate and any current payments ought to appear (positively) on homeowners’ credit scores. This can accelerate improvements to creditworthiness that occurs after bankruptcy.

(4)  Okay, there’s actually a third alternative, but it’s not tried as often: The homeowner can choose not to reaffirm the mortgage but instead try to convince a different lender to assume the mortgage and then refinance it through that lender. This way, the debtor can benefit from the new mortgage appearing on a credit report and maybe even get a lower interest rate too.

Chapter 7 bankruptcy doesn’t usually end with homeowners moving out, and it can benefit people who want to stay in their houses. Choosing which course of action is best requires an experienced New York bankruptcy lawyer.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

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