What Happens to Mortgages When You File for Bankruptcy in Indiana?
Filing for bankruptcy can be a daunting experience, particularly for homeowners who are concerned about their mortgages. In Indiana, understanding the implications of bankruptcy on your mortgage is crucial to making informed financial decisions. This article explores what happens to mortgages when you file for bankruptcy in Indiana.
When you file for bankruptcy in Indiana, two types of bankruptcy are typically considered: Chapter 7 and Chapter 13. Each option has different implications for your mortgage and overall financial situation.
Impact of Chapter 7 Bankruptcy on Mortgages
Chapter 7 bankruptcy is often referred to as 'liquidation bankruptcy.' In this process, much of your unsecured debt is discharged, but it doesn't directly eliminate your mortgage debt. However, the following can happen:
- Automatic Stay: Upon filing for Chapter 7, an automatic stay goes into effect, which halts any foreclosure actions temporarily. This provides you with some relief and time to assess your situation.
- Keep or Surrender: If you can continue making mortgage payments, you may keep your home. However, if you cannot afford the mortgage, surrendering the property may be a viable option. The mortgage lender can then foreclose on the property, but this process takes time.
- Potential Loss of Home: If you fail to catch up on payments or reaffirm the mortgage debt, your lender is entitled to foreclose on your home after bankruptcy.
Impact of Chapter 13 Bankruptcy on Mortgages
Chapter 13 bankruptcy is often called 'reorganization bankruptcy.' This type allows you to keep your property by creating a repayment plan for your debts over a period of three to five years. Here are key points regarding mortgages:
- Debt Restructuring: You can restructure your mortgage payments, including any past-due amounts, into a manageable repayment plan.
This can be especially beneficial for those who are behind on payments but wish to retain their homes. - Protection from Foreclosure: Like Chapter 7, filing for Chapter 13 invokes an automatic stay, protecting you from foreclosure while in the repayment plan.
- Mortgage Debts Might Be Discharged: Unsecured second mortgages are sometimes dischargeable in bankruptcy, reducing your total debt load.
Considerations After Filing for Bankruptcy
After bankruptcy, especially Chapter 7, you may be concerned about your credit score and future borrowing power. It's important to note:
- Credit Score Impact: Filing for bankruptcy will have a negative impact on your credit score. However, with responsible financial behavior, you can rebuild your credit over time.
- Mortgage Eligibility: It may be challenging to secure a new mortgage immediately after bankruptcy. Generally, lenders may require a waiting period of two to four years after Chapter 7 or Chapter 13 before considering your application.
Conclusion
The outcome of filing for bankruptcy in Indiana largely depends on whether you file for Chapter 7 or Chapter 13. While both options provide a temporary respite from foreclosure, they offer different paths for handling mortgage debt. Consulting with a bankruptcy attorney can be invaluable in navigating this complex process and determining the best course of action for your financial future.
By understanding what happens to mortgages during bankruptcy, homeowners in Indiana can make informed decisions that align with their long-term goals.