Treatment of Mortgage Loans in Bankruptcy

If you are contemplating filing a bankruptcy, you probably want to know how a bankruptcy will affect your home. Can you keep it? Can you stop a foreclosure? Will you lose the equity you have built up over the years? The following guide will walk you through some common questions individuals just like you have when deciding to file for bankruptcy.

What Happens to My Mortgage if I File for Bankruptcy?

Most Arizona residents that file for bankruptcy can keep their home. Generally, Arizona residents that file for bankruptcy are allowed up to $150,000 of equity in their primary residence when filing a Chapter 7 Bankruptcy. You can have additional equity beyond that amount in a Chapter 13 Bankruptcy; however, it may affect your Chapter 13 payment.

Arizona Homestead Exemption

Arizona’s Homestead Exemption is found under A.R.S. 33-1101. The exemption protects up to $150,000 worth of equity in your home from unsecured creditors. If you only have one property, the exemption is automatic, meaning you do not have to make a formal written claim or record a declaration of your homestead.

The homestead exemption applies to houses, mobile homes, condos, and land you own as long as the associated property acts as your primary residence.

Home Mortgages in a Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy is often called referred to as a liquidating bankruptcy. In a Chapter 7 Bankruptcy, non-exempt assets are liquidated/sold and the proceeds are disbursed to your unsecured creditors. Because of this, many individuals are fearful that they will lose their home if they file a Chapter 7 Bankruptcy. The Arizona Homestead Exemption allows most Arizona bankruptcy filers to retain their home provided it is their primary residence and there is no more than 150,000 of equity at the time of filing.

If you own your home, it is important that you are current on your mortgage upon filing a Chapter 7 Bankruptcy. If you intend to keep your home after filing a Chapter 7 Bankruptcy, you must continue to make the regular monthly mortgage payments to the lender after your case is filed. Essentially, you keep your home as long as you keep making the mortgage payments, just like before you filed for bankruptcy. You receive credit for the payments you make, and you build equity as you pay down the loan balance and the value of the home continues to increase.

Home Mortgages in a Chapter 13 Bankruptcy

In a Chapter 13 Bankruptcy, you can keep your home, provided you continue to make the mortgage payments as usual. A Chapter 13 Bankruptcy also allows you to force the lender to let you repay any past due mortgage payments over 60 months. A Chapter 13 Bankruptcy is a great option if you are behind on your mortgage payments and facing a foreclosure.

In Arizona, if you are behind on your mortgage payments and you file a Chapter 13 Bankruptcy to keep your home, your mortgage payments will be made through your Chapter 13 plan. Your Chapter 13 plan will pay the normal mortgage amount, plus an additional amount each month to the Chapter 13 Trustee who will make payments directly to the mortgage company. This is called a Mortgage Conduit Plan.

Additionally, under certain circumstances, you can strip off/remove a junior mortgage from your home in a Chapter 13 Bankruptcy through a process called lien stripping. Lien stripping is not available in a Chapter 7 Bankruptcy.

More Information About Bankruptcy in Arizona

If you have additional questions related to the treatment of mortgage loans in Arizona Bankruptcy cases, contact Treguboff Law, PLC today. We have the knowledge and experience to assist you, regardless of if you’re considering a Chapter 7 or Chapter 13 Bankruptcy. Additionally, our Zero Down and Low Down options make filing a bankruptcy with the assistance of an attorney a possibility for almost any individual.

At Treguboff Law, PLC we handle cases across the State of Arizona. If you are struggling under a significant amount of debt, facing wage garnishment, foreclosure or vehicle repossession, time is of the essence. Get started on the path to financial freedom and a fresh start by contacting Treguboff Law, PLC at 623-680-6504.The call and the advice are free.