Bankruptcy and Your Mortgage: What Happens in Massachusetts?

Bankruptcy can be a daunting experience, especially when it comes to significant assets like your home. If you live in Massachusetts and are facing financial difficulties, understanding how bankruptcy affects your mortgage is crucial for making informed decisions.

In Massachusetts, there are two common types of bankruptcy individuals may file for: Chapter 7 and Chapter 13. Each type has unique implications for your mortgage and homeownership.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most unsecured debts. However, it doesn’t automatically eliminate your mortgage. If you are behind on mortgage payments, the lender has the right to foreclose on your home unless you take specific actions.

During Chapter 7 bankruptcy, you can choose to either reaffirm the loan or surrender the property. Reaffirming the mortgage means that you agree to keep paying it even after the bankruptcy process. This option may be beneficial for those who want to retain their home and have the means to continue making mortgage payments. On the other hand, surrendering the property allows the lender to initiate foreclosure proceedings.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is often a more favorable option for homeowners who wish to keep their homes. This type of bankruptcy involves creating a repayment plan to pay back some or all of your debts over three to five years. One of the key advantages of filing for Chapter 13 is that it allows you to catch up on missed mortgage payments without the risk of immediate foreclosure.

In Massachusetts, the repayment plan must be approved by the bankruptcy court, which may include provisions for your mortgage payments. As long as you continue to make your current payments and adhere to the repayment plan, you can retain your home. Additionally, any accumulated debt from missed payments can be included in the repayment plan, making it easier for homeowners to manage their finances.

Automatic Stay

Regardless of the bankruptcy chapter filed, an automatic stay goes into effect once bankruptcy is filed. This stay halts all collection actions, including foreclosure proceedings. This means that if you are facing foreclosure, filing for bankruptcy can provide temporary relief and a chance to reorganize your finances.

Maine and Your Exemptions

When dealing with bankruptcy in Massachusetts, it’s essential to understand property exemptions. Massachusetts has specific exemptions that protect a portion of your home equity from being seized in bankruptcy. As of the latest updates, homeowners can exempt up to $500,000 of equity in their home, provided they occupy it as their primary residence.

Using these exemptions wisely can be crucial for homeowners looking to maintain ownership of their property while navigating bankruptcy proceedings.

Consult a Bankruptcy Attorney

File for bankruptcy may seem overwhelming, particularly with all the intricacies involved with mortgages. It is highly recommended to consult with a bankruptcy attorney who is well-versed in Massachusetts laws. They can help you understand your options, assess your financial situation, and create a strategy that aligns with your goals for homeownership and financial recovery.

Ultimately, navigating bankruptcy and your mortgage in Massachusetts requires thoughtful planning and a solid understanding of the processes involved. With the right guidance and knowledge, it is possible to emerge from financial distress and protect your most significant asset—your home.