Late Mortgage Payment During Chapter 7: Managing Your Home Loan Obligations

Are you dealing with late mortgage payments during your Chapter 7 bankruptcy? Learn about your options and legal rights in this guide by the Law Offices of Wenarsky and Goldstein, LLC.

Chapter 7 Bankruptcy and Missed Mortgage Payments: Legal Implications and Considerations

When you’re in serious debt and in danger of losing your assets, filing for bankruptcy can help you get relief from your creditors.

There are two different types of bankruptcy for individuals: Chapter 7 and Chapter 13, each with different implications.Chapter 7 is the more popular option because it erases debts and allows you to rebuild your finances on a clean slate.

If you are in danger of losing your home because you’ve missed your monthly mortgage payments, you might be wondering if Chapter 7 would erase your mortgage debt so you can keep your home. Unfortunately, the answer is no. If you’ve missed your mortgage payment, Chapter 7 bankruptcy might erase your liability for the outstanding amounts, but it will not stop the lender from foreclosing on the property. 

Understandably, the thought of losing your home can be scary. However, if your sole reason for filing Chapter 7 bankruptcy is to protect your home, your efforts might prove to be ineffective in the long term. It is important that you seek legal counsel before taking any steps to avoid mistakes that could cost you your home.

Our experienced legal team at the Law Offices of Wenarsky and Goldstein, LLC can help you understand your options and provide the necessary guidance to help you emerge from your situation on stable footing. Read on as we further discuss the impact of a Chapter 7 bankruptcy on late mortgage payments, possible alternatives, and specific ways we can help you find practical solutions to preserve your assets and achieve debt relief.

The Best Type of Bankruptcy if You Are Struggling With Mortgage Payments

Chapter 7 bankruptcy wipes off most unsecured debts. However, this type of bankruptcy involves liquidating the debtor’s assets. The bankruptcy trustee will gather the debtor’s assets and sell them off, using the proceeds to pay off creditors in the manner specified by the Bankruptcy Code. By its very nature, therefore, a Chapter 7 bankruptcy may not be appropriate for anyone who hopes to preserve their assets during bankruptcy.

There are bankruptcy exemptions that could allow a debtor to keep some of their property or allow them to receive a part of its proceeds after the sale. For example, the federal homestead exemption used by New Jersey debtors (since New Jersey does not have a state homestead exemption law) allows a homeowner to keep up to $27,900 of their home equity.

However, the homestead exemption only applies to restrict the bankruptcy trustee’s liquidation powers. It cannot protect your home from a mortgage lien, which gives the mortgage lender or mortgage company the legal right to seize the property if you default. This is because when you signed the mortgage documents, you agreed to two basic obligations:

  • To pay the lender a certain amount in installments
  • To use your home as security or collateral which would be sold to recover the debt if you defaulted.

Bankruptcy only affects the first obligation and not the second.

Now, you may have heard that once you file bankruptcy, creditors are prevented from taking any action to recover the debt (known as the automatic stay). However, the automatic stay is a temporary measure and only lasts while the bankruptcy proceedings are ongoing. Once the bankruptcy ends (Chapter 7 typically lasts for a few months), the lender’s power of foreclosure is activated. 

In some cases, the lender may ask the bankruptcy court to lift the automatic stay to allow them to exercise their power of foreclosure. If the court grants their request, then you could lose your home during the Chapter 7 bankruptcy.

Chapter 13 Bankruptcy: An Alternative to Chapter 7

If you proceed with a Chapter 7 bankruptcy when you have missed mortgage payments, you might have to give up your home. Chapter 13 bankruptcy might be a more appropriate option in such cases to save your home.

Chapter 13 bankruptcy allows individuals to restructure or reorganize their debts and pay them off gradually following a court-approved repayment plan. This type of bankruptcy has several advantages over Chapter 7, including the following.

  • It allows debtors to preserve their assets since there’s no liquidation involved. 
  • It can help you stop foreclosure proceedings and help you catch up with past-due mortgage payments over time.
  • It allows for the lien stripping of junior mortgages (converting them to unsecured debts), which could offer immense financial relief for people who have multiple mortgage liens on their homes. An experienced bankruptcy attorney can provide more insights on how this works.

However, even though Chapter 13 generally allows you to reschedule or restructure secured debts (debts with collateral), restructuring is usually not permitted if the mortgage is for your primary residence. So, you must continue making monthly payments until the mortgage loan is fully repaid.

While Chapter 13 bankruptcy may appear to align with your home preservation goal, it is important that you seek legal guidance before deciding on a specific type of bankruptcy because the stakes are high. Each type of bankruptcy has unique legal requirements. So, you want to ensure that you meet the specific requirements for the type of bankruptcy you prefer and that it would offer you the best possible outcome, considering your circumstances.

What if You Have Already Filed a Chapter 7 Bankruptcy?

Perhaps you already initiated the Chapter 7 bankruptcy process only to find that it’s not the lifeline you anticipated, especially as it concerns your mortgage arrears and getting foreclosure relief. There might be a way out in such cases.

Following the provisions of the Bankruptcy Code, you could convert your  Chapter 7 bankruptcy to Chapter 13 bankruptcy so that you can protect your home. However, to qualify for conversion, you must meet certain basic conditions:

  • You must be eligible for bankruptcy under Chapter 13. (The primary eligibility requirement for this type of bankruptcy is having a steady income).
  • You must not have engaged in any prior conversion.

The bankruptcy conversion process can be complex because of the intricate requirements involved. It is important that you get help from an experienced bankruptcy attorney who can help you understand the peculiarities of the process, advise you on its suitability, and guide you through the process to ensure you emerge with substantial debt relief.

How the Law Offices of Wenarsky And Goldstein, LLC Can Help

Your home might be the biggest investment you’ll ever make, which is why you must fight hard to keep it even though you might be experiencing tough financial times.

In our years of legal practice at the Law Offices of Wenarsky and Goldstein, LLC, we’ve found that bankruptcy can offer immense relief to individuals dealing with huge debts. However, the process can be complicated, and we are committed to helping people like you navigate it with ease so they can get the much-needed respite to restrategize and rebuild.

With our considerable knowledge and legal skills, we can

  • Assess your case and advise you on your legal options at every stage of the process so you can make informed decisions. 
  • Help you determine which type of bankruptcy would offer you the most benefits based on your unique situation.
  • Represent you throughout the bankruptcy proceedings to secure your interests and ensure the case progresses as smoothly as possible.

We know what it means for a person to lose their home. You can trust us to explore all legal avenues to ensure that this does not become your fate.

Contact Us Today. Let Us Help You Protect Your Home

Chapter 7 bankruptcy can wipe out your unsecured debts, but it cannot eliminate your obligations under a mortgage. If you missed your mortgage payments, you may need to find other alternatives to help you protect your home from foreclosure.

Our bankruptcy Lawyers in New Jersey can help you find legal solutions within the world of bankruptcy that align with your specific circumstances.

If you’re facing imminent foreclosure or struggling to keep up with your mortgage payments, do not hesitate to contact us. Let us help you take positive steps to secure your home.

Call the Law Office of Wenarsky & Goldstein

At the Law Offices of Wenarsky & Goldstein, LLC, our New York and New Jersey attorneys are experienced and knowledgeable in bankruptcy, estate planning and probate, guardianship, special needs planning, and real estate law. To learn more about how we can assist you with your legal needs, call us today at 973-453-2838.