Pay the Mortgage in Bankruptcy?
Yes, you must pay your mortgage even if you plan to file bankruptcy. Much has been written about the ability of chapter 13 bankruptcy to help homeowners catch up on past due mortgage payments, but beware it’s not a cure all. It’s true, filing a chapter 13 bankruptcy can stop foreclosure and allow for some breathing room by dividing overdue payments into manageable installments over a 3-5 year period.
Chapter 13 bankruptcy can also force lenders to modify second and third mortgages when the homeowner is underwater on a first mortgage. Similarly, you’ve probably heard that filing for chapter 7 bankruptcy will immediately halt a pending foreclosure sale. This is true of both chapter 7 and 13 bankruptcy: the injunctive powers of the bankruptcy code stop all collection activity (phone calls, foreclosure, lawsuits etc.) the minute the case is filed. Even if your home is scheduled to be sold the next day, filing for bankruptcy protection will temporarily stop the foreclosure. That’s the good news; now on to the limits of bankruptcy housing relief.
Mortgage Lenders Can Ask For Relief From The Bankruptcy Injunction When You Don’t Pay Your Mortgage
To be sure, filing for bankruptcy offers numerous unique advantages when it comes to protecting your home from creditors. However, it is important to understand that filing for bankruptcy does not relieve the obligation to pay your mortgage if you wish to keep your home. Failure to make normal monthly mortgage payments will still result in foreclosure, regardless of whether you’re in bankruptcy.
The bankruptcy injunction, otherwise known as the automatic stay, prevents your bank from foreclosing while it remains in place. Unfortunately, failure to pay the mortgage is grounds for what is known as “relief from stay.” If you fail to make normal monthly mortgage payments, your lender can attack the bankruptcy injunction and have it lifted by the court. Once the automatic stay has been lifted, your lender can proceed with foreclosure.
Rob Cohen, the Managing Partner of Cohen & Cohen P.C., is a bankruptcy attorney that practices in Colorado and Wyoming. He serves as a Chapter 7 Bankruptcy Panel Trustee, and has to date administered over 8,000 Chapter 7 bankruptcy estates. Rob is a Certified Consumer Bankruptcy Specialist, and was nominated for Denver Business Journal’s 40 under 40 in both 2014 and 2016.