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Was there a mortgage included in your bankruptcy?

Mortgage Included in Bankruptcy?

Since 2011, I have been focusing much more time and energy to educating folks about being able to buy again after bankruptcy, foreclosure, short sale or deed in lieu of foreclosure.

One of the most common questions I get is in regards to including a mortgage or mortgages in bankruptcy.

This is a tricky question because it seems that bankruptcy attorneys do not always do a great job of explaining to folks what it means to include a mortgage in bankruptcy.

Bankruptcy does not protect you from foreclosure

One of the biggest misunderstandings about including a mortgage in a bankruptcy is that folks believe that once they do, they no longer own the home.

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This could not be further from the truth.  Bankruptcy protection simply protects you against the bank suing you and getting a deficiency judgment (sue you for the losses they incurred) IF you should default on the mortgage.

It’s also important to understand that while you cannot be held accountable by the lender if you default, you are still responsible for the mortgage and you are still the owner of the home.

While filing for bankruptcy will postpone the foreclosure process, it does not pay off the mortgage or protect you from foreclosure.

The problem I see most often is that after filing for bankruptcy, on the advice of the bankruptcy attorney, folks stop making payments on the home and either just walk away or continue to live in the home until the foreclosure proceedings are complete.

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The challenge with walking away or simply “waiting it out” is that the banks are taking YEARS to foreclose in many cases.  As you can see from the comments on an earlier article I wrote “Including Mortgage in Bankruptcy is NOT Free and Clear

Protect yourself and buy again sooner

The main purpose of this article is to help you understand the process so that you don’t have surprises in the future once you’ve gotten back up on your feet.  My suggestion is that if you feel that you will not be able to keep the home, and if you want to be in a position to buy another home as soon as possible, consider either a deed in lieu of foreclosure or a short sale.

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Neither option will cost you money to do, and both options will at least give you control over the process and help you buy again sooner than if you were to allow the bank to foreclose on the home.

If you have any questions about your options, feel free to live chat, shoot me a private email, or leave a public comment below.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Nathan says:

    How long is the waiting period after a ch7 bankruptcy involving a mortgage??

    • Scott Schang says:

      Hi Nathan, the waiting period for a Chapter 7 BK is 2 years. VA treats the BK and any subsequent default as 2 separate events with two separate waiting periods. What happened to the mortgage? If the mortgage has been paid on-time, then there is only a 2-year wait to use your VA benefit to buy a new home. If you lost the home to foreclosure or a deed in lieu of foreclosure, there is an additional wait of 2 years from the date your name is removed from title. A short sale is not considered a financial hardship by VA.

      I can also help connect you to a loan officer that has extensive experience with these guidelines. If you would like, shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in. Working with an experienced loan officer will save you a ton of time, money and heartache.

      THANK YOU for your Service! I hope this helps?

  • Mari says:

    I own a home at the time 417000 in 2008 I became disabled I have first mortgage and second mortgage in my home I will say able to get a notification they only modified my first loan now my second home I haven’t paid the second loan sense they never tried to foreclose on my property since the reception and 2012 which I I did them notifications they never tried to go after me I had Dr going off to me and suet for my home I got a lawyer and he told me to do bankruptcy 7 that includes both of my home I have no equity in my house I’m disable I still current in my first mortgage what will happen with my second mortgage since they never try to foreclosure my house worth now 230000 what will happen with my second mortgage since I don’t have enough payments my kids live with me with my grandkids and their help me pay the mortgage My First Mortgage what can happen can I try to contact my mortgage that did a balloon payment only paying interest on my first mortgage can I include my second mortgage to avoid foreclosure my lawyer did not reaffirm and neither both morgage what can I do to save my home where my kids and grandkids live with me

    • Scott Schang says:

      Hi Mari,

      This is a tricky situation. If you are not making payments on the second mortgage, the lender can foreclose on the home. Including a mortgage in bankruptcy does not prevent the lender from foreclosing if you stopped making payments.

      Without equity in your home, the second mortgage holder is likely to just wait until there is equity to foreclose.

      If you have the money, you can always attempt to settle with the second mortgage holder for less than the total amount owed. If you can do that, and continue to make the payments on your first mortgage, then you should be able to avoid foreclosure.

      Hope this helps?

      • Betty says:

        As long as it isn’t Specilialized Loan Servicing (SLS). They will not negotiate one red penny. I tried for 18 months. They got more than I owed. Good luck Mari ????????????????????????????????

  • Elle says:

    My home was included in a Bankruptcy in 2008, I remained in the home until a short sale was complete in August 2017, I received a tax form for debt forgiveness? Since the home was discharged in 2008, does that get reported as earned income? Confused since the debt was included.

    • Scott Schang says:

      Hi Elle, this is a question for a licensed tax professional, so my answer is simply from an educated “friend” that should be confirmed by a professional. If your mortgage was discharged in the bankruptcy, you cannot be further penalized or taxed as a result of the short sale. Also, if you are not aware, you would be eligible to buy again using conventional financing 4 years from the discharge of the bankruptcy, and disregard the short sale in 2017.

      Hope this helps?

      • Elle says:

        Thanks, I will consult a tax professional, however did a little research and a simple form needs to be attached to taxes…form 982!!!

  • Mike says:


    We filed bankruptcy in 2014 and the Mortgage was included. The BK was discharged in May of 2014. We intended to keep our home, but could not. The house was foreclosed on and sold in Dec. 2016. We are currently back on our feet, doing well and want to buy house. However, every Lender tells us we have to wait 3 years from the foreclosure date because the intent was to keep the property. Is this accurate or would it be 4 years after the BK discharged date? If it is 4 years from the BK discharge date, what would be the minimum down payment required? Also, could you suggest a Lender?

    • Scott Schang says:

      Hi Mike,

      My experience is that many lenders will take this, more conservative view of the Fannie Mae underwriting guidelines. The fact is, these lenders are choosing not to do the loan, and not necessarily following actual guidelines.

      You are correct, you would be eligible for a conventional loan 4 years form the discharge of the bankruptcy.

      I have lender friends in our Expert Network that have a lot of experience with these guidelines and can absolutely help.

      If you can shoot me an email to scott@findmywayhome.com, or complete one of the forms on the site, I will introduce you to a lender that follows the 4 year guidelines and will not penalize you for the foreclosure in 2016.

      You will not be able to actually close your loan until after the 4 years have lapsed, but you can at least get your loan approval and know what you qualify for so you be ready as soon as you’re eligible.

      Hope this helps?

      P.S. if you email me, please include what State you’re trying to buy in 🙂

  • Anthea says:

    I filed for Bankruptcy in Dec 2015. I would like to purchase a home for the same amount as my rent payment . I am told by lenders if I have made 12 months of chapter 13 payments with a steady income I may qualify for a FHA loan. Is this possible to obtain a FHA loan?

    • Scott Schang says:

      Hi Anthea,

      FHA guidelines will allow for this if the bankruptcy trustee/judge gives you permission to apply for a mortgage while still in bankruptcy.

      It would be a manually underwritten FHA loan, so you’re going to need to make sure you are working with a loan officer that has experience with FHA manual underwriting guidelines.

      If you would like an introduction to a loan officer that I know and trust for a second opinion, shoot me an email to scott@findmywayhome.com and I can make an introduction.

      Hope this helps?

  • Julissa says:

    Hello I file for bankruptcy in 2011. at the time I had two mortgages. The second mortgage was stripped with the chapter 13 and my case was discharged in June of 2015. When will I be able to get an FHA mortgage or a conventional mortgage. Also I sold the property and the last payment was made 30 days late because the closing date was changed, will this payment affect my eligibility although it is not reported to the credit bureaus?

    • Scott Schang says:

      Hi Julissa,

      You would be eligible for a Conventional loan 2 years from the discharge of the Chapter 13. The late payment is not reported on your credit report because it was included in the bankruptcy. For FHA, there’s a 2 year wait from the BK discharge, so you’re right there. If the home was sold for less than the amount owed, FHA is going to require an additional 3 year wait from the date your name came off title (close of escrow).

      If you would like an introduction to a lender that has experience with these guidelines, shoot me an email to scott@findmywayhome.com and I can get you pointed in the right direction. Just let me know what State you’re trying to buy in.

      It sounds to me like you’re eligible to buy now.

      Hope this helps?

  • Tyler says:

    Chapter 7 discharged in 2010, mortgage was included. We never reaffirmed mortgage, we still live in home and have keep up on the payments. We are still currently paying, we have saved up and rebuilt our credit. Can we buy a new home now if our current home has never gone into foreclosure. We have been preapproved for a conventional loan, I just want to make sure we will not run into issues at closing. Please help

    • Scott Schang says:

      Hi Tyler,

      Yes, you can absolutely buy using a conventional loan. Any issue you would run into would not be the result of your bankruptcy. If you do have any challenges, let me know. There are many lenders out there that do not know how to underwrite these types of scenarios.

      • Tyler says:

        Thank you very much, I was concerned because it never went into foreclosure so I was concerned that since our name was still technically on the title that the bank would not allow us to buy a new home.

  • Charlene says:

    I filed chapter7 bankrupsy in march 2014 I included my townhouse in my bk it was discharged in aug 2014 when do I qualify for a fha morgage is it from discharge date of bankrupsy date or the foreclosure date which is feb 2017also does my name need to be removed from title the sale date of property was nov 8 2016

    • Scott Schang says:

      Hi Charlene,

      FHA is going to require a waiting period of 3 years from the date that your name is removed from title (foreclosure). What you may be seeing is the notice of default, and opposed to the actual recording of the sheriff’s deed (foreclosure). That might be the discrepancy between the 2 dates (Nov 2016 / Feb 2017).

      The good news is that you’re eligible for conventional financing now. As long as the foreclosure is complete, you can use conventional financing 4 years from the discharge of the Chapter 7.

      If you send me your contact information to Scott@findmywayhome.com, I will introduce you to a lender friend of mine that has experience with these guidelines.

      Hope this helps?

  • Paul says:

    I included my home in a chapter 7 bankruptcy in Jan 2016, it was discharged in April 2016. It is now June 2017 when can I get a mortgage to buy a condo?

    • Scott Schang says:

      Hi Paul,

      First question, do you still live in the home? If not, when did your name come off title?

      There is definitely an option for buying 1 year out of bankruptcy, but it’s not cheap. There are portfolio loans that will allow you to buy one day out of BK with 20% down payment, higher rates and closing costs.

      Tell me more about what happened to the home, how much do you have for a down payment, and what State are you buying in?