For many people, bankruptcy is the only option to defend against mortgage debts and the risk of foreclosure. While there are two options for managing your mortgage debts in bankruptcy, they each carry different benefits and risks.
When you file for Chapter 7 much of your unsecured debt can be written off, allowing you to afford to resolve your mortgage debts within your budget. If the bulk of your debt burden lies within your mortgage debt you may be able to have any additional liens stripped off your property, lowering your principal amount on the debt. Chapter 7 can also help fight a foreclosure by improving your chances of qualifying for a mortgage modification with the lender, or open up other avenues of debt resolution. Depending on your state of residence, bankruptcy exemption laws may exempt your home completely from any liquidation proceedings. However, it is important to note that the federal exemption and several states do not have a full homestead exemption law.
When you file for Chapter 13, both your secured and unsecured debts can be rolled into one plan for debt relief. Missed mortgage payments will become a priority debt in your wage earners plan, whereby you will repay your debt over a period of up to five years. Additional mortgage liens can be stripped away, leaving you liable for only maintaining your repayment plan and current mortgage payment. Further, there is no need to worry about relevant exemption laws as long as you maintain your Chapter 13 payments.