Massachusetts Bankruptcy Law: What Happens to Your Mortgage?

Massachusetts bankruptcy law can significantly impact your mortgage obligations, and understanding these effects is crucial if you're considering filing for bankruptcy. This article delves into how bankruptcy affects your mortgage, the different types of bankruptcy options available, and the steps to take to protect your home.

When an individual files for bankruptcy in Massachusetts, it can lead to various outcomes concerning their mortgage. The two primary types of bankruptcy available for individuals are Chapter 7 and Chapter 13. Both options have distinct implications for home ownership.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows for the discharge of many unsecured debts, such as credit card debt and medical bills. However, this type does not typically discharge secure debts like mortgages. In Massachusetts, when you file for Chapter 7, the automatic stay immediately halts foreclosure proceedings, providing temporary relief. Nevertheless, if you are behind on mortgage payments, the lender can eventually proceed with foreclosure if payments are not made.

In a Chapter 7 scenario, if you wish to keep your home, you will need to stay current on your mortgage payments. Additionally, you may need to reaffirm your mortgage loan, agreeing to continue obligations under specific terms post-bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, on the other hand, is particularly beneficial for homeowners. This type of bankruptcy allows individuals to reorganize their debts and create a repayment plan over three to five years. Under Chapter 13, you can potentially catch up on missed mortgage payments and retain your home, as it provides a safety net against foreclosure.

Filing for Chapter 13 also puts an automatic stay on all collection actions, including foreclosure. This creates a structured environment where you can come up with a plan to address missed payments and manage other debts. By following through on the repayment plan, you can protect your home from foreclosure and get back on track with your mortgage.

What If You’re Underwater on Your Mortgage?

If you owe more on your mortgage than your home is worth, filing for bankruptcy may present an opportunity to negotiate or even modify your loan terms. In Chapter 13, you may be able to strip off second mortgages if the value of your home is lower than the balance owed on the first mortgage, which can significantly improve your financial situation.

Consult a Bankruptcy Attorney

Navigating bankruptcy laws can be complex, particularly regarding your mortgage. It is advisable to consult with a bankruptcy attorney who can provide guidance tailored to your specific circumstances. They can help you understand the implications of bankruptcy and guide you on the best course of action to protect your home and manage your financial obligations.

Conclusion

In summary, Massachusetts bankruptcy law offers pathways to manage mortgage obligations when facing financial hardship. Understanding the distinctions between Chapter 7 and Chapter 13 bankruptcy is critical to making informed decisions about your mortgage and home. Whether you are looking to keep your home or explore options for restructuring your finances, seeking professional legal advice can pave the way for making the best decisions in your financial journey.