For most people, a house is the biggest purchase they will ever make.  It’s an important, crucial and cherished part of a family’s life experience.  When financial hardships arise that force you to consider filing for bankruptcy, you have the right to wonder about the fate of your home.  The good news is Alabama allows people to keep their homes through bankruptcy, if they can maintain their mortgage payments.  

Bankruptcy usually discharges unsecured debt such as personal loans and credit card bills.  It doesn’t usually discharge secured debt such as mortgages and car loans.  If you want to remain in your home then whatever you owe on your house will likely be your burden once your bankruptcy is over.  If you aren’t willing to pay the mortgage then you will have to give up the home because your lender’s right to foreclose doesn’t disappear when you file for Chapter 7 bankruptcy. Luckily, there are protections afforded through bankruptcy for individuals with mortgages. If you contact a local bankruptcy attorney in Montgomery, or wherever you live, they can help you through the process.

If you want to walk away from your mortgage after filing for Chapter 7 you can absolutely do so.  Chapter 7 bankruptcy can eliminate mortgage debt, so if you’re willing to give up the house your mortgage will be eliminated.  All you have to do is let the bankruptcy court and mortgagor know of your decision to give up the house when you file your bankruptcy paperwork.  

A mortgage loan is what is known as “secured debt.”  When you entered the mortgage contract, a lien on the property was created because the home is collateral to guarantee payment of the loan.  Because of the lien, if you don’t pay your mortgage then the lender can enforce it and foreclose on the home.  The house lien makes the mortgage a secured debt.  Filing for Chapter 7 bankruptcy wipes out your obligation to pay back the mortgage loan but it doesn’t eliminate the mortgage lien.  If this was the case, well everyone could just file for Chapter 7 bankruptcy and own their homes free and clear.  

When you file Chapter 7 bankruptcy you can decide whether or not you want to keep or surrender your home.  If you decide to surrender the home then you are usually no longer obligated to pay off the mortgage.  Your lender is then allowed to sell off the home and you are cleared of the mortgage.  You cannot be sued by the lender to recover the difference between what your house is appraised for and what you owe on the loan.  You are not held responsible for the difference.  

If you decide to stay in your home, then usually you are permitted to do so through bankruptcy exemptions, provided you can keep up and continue with the mortgage payments.  In order to take advantage of the bankruptcy exemptions, you usually must be up to date on your mortgage payments before filing for Chapter 7 Bankruptcy.  Bankruptcy can also help you keep your home by its authority to delay the foreclosure on your home.  An “automatic stay” is granted during the Chapter 7 filing and this usually prevents banks and creditors from collecting any debt until the bankruptcy is completed.  During this time you could come up with an agreement with your lien holder that would allow you to keep your property. 

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