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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

  • Kerri says:

    I saw your email when trying to research this topic. I’m so confused and am begging for some clarity. So I’m reaching out to you since you are the expert! Here is my dilemma and question.
    My husband filed chapter 7 bankruptcy 3 years ago. He had two mortgages when he bought our home. We did not reaffirm the mortgages. We continued to stay here and pay the first mortgage. However we didn’t pay the 2nd. Now they are foreclosing 3 years post bankruptcy. Our mortgages do not show on our credit bureau and payments did not either. My husband and I were just approved for a mortgage. The foreclosure is next month. I’m freaking out because my lender isn’t sure what will happen when the title company does a title search after the foreclosure! Is this going to be another waiting period? It’s been 3 years since the bankruptcy discharge and I’m hoping we don’t have to wait again. Please advise at your convenience.

    Kindest Regards

    • Scott Schang says:

      It was a pleasure speaking with you Kerry! It is disappointing that there are lenders out there that are unwilling to tell you that they do not have experience with these guidelines, so I’m glad we had an opportunity to talk and figure out your game plan. You’re making the right decisions and we’ll connect you with a mortgage professional when you’re ready!

      Hope this helps?