Mortgage Debt and Bankruptcy
Bankruptcy is an extremely powerful tool for dealing with mortgage debt.
If you file a Chapter 7 bankruptcy, you can surrender your home and walk away owing the mortgage company nothing. This option is commonly utilized with homes that have negative equity, and would not be worth attempting to sell.
You can also choose to keep honoring the mortgage contract just as it was, and make your monthly payments and keep the home. Nothing changes regarding your ability to pay the home off and own it outright if you take this option; however, your payments will not be reported to credit bureaus, as the underlying debt has been legally discharged in your Chapter 7 bankruptcy case.
If you file a Chapter 13 bankruptcy plan, you can catch up on missed mortgage payments over a sixty (60) month period, which flattens out the total to a manageable monthly amount. You can also strip second mortgages off of homes that do not have any equity to secure the note. Last, if any creditors have previously sued you, and then turned their judgment into a judgment lien on your home, Chapter 13 allows for the stripping of these judgment liens.
A Chapter 13 plan carries another more global benefit to your financial wellness: Once you have streamlined your debt obligations and reduced your monthly total paid out to all creditors, within the construct of your plan, this makes it far easier to prioritize your monthly mortgage payment amount and thereby pay down your home.