Filing for bankruptcy can affect your existing mortgage and future home-buying ability. If you keep up with payments, some bankruptcies let you keep your home.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7: Known as total bankruptcy, it wipes out most of your debt but may require you to sell the property.
Chapter 13: This repayment plan allows you to keep your property by making scheduled payments.
Liens and Bankruptcy
Liens on your property remain even after bankruptcy, meaning lenders can still foreclose if debts aren't paid.
Filing for Bankruptcy with a Mortgage
You won’t automatically lose your home.
In Chapter 7, your property is either exempt or nonexempt. Exempt properties can be kept if you stay current on payments. Nonexempt properties might need to be surrendered or paid for in cash.
Chapter 13 generally allows you to keep your home by including mortgage payments in your repayment plan.
Getting a Mortgage After Bankruptcy
You can't get a mortgage during bankruptcy, but you can after it’s discharged. The waiting period depends on the type of loan and bankruptcy:
Chapter 7: 2 years for FHA/VA loans, 4 years for conventional loans.
Chapter 13: No waiting for FHA/VA loans if payments are current; 2-4 years for conventional loans.
Alternatives to Bankruptcy
If you're struggling with mortgage payments, options include mortgage modification, short sales, or a deed in lieu of foreclosure. For other debts, consider negotiating with creditors for relief.
Bottom Line
Bankruptcy affects your mortgage and credit, but with time and proper steps, you can still obtain a mortgage in the future.
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