Is Bankruptcy an Option If You Default on Your Mortgage?

If money feels tight, you’re not alone. Inflation and the high cost of living have made it a challenge for many Oregonians and Washingtonians to make their monthly mortgage payment. Home foreclosures and mortgage defaults are increasing nationwide. If you’re one of the many thousands of Americans in that position, you may wonder if bankruptcy is an option for you.

If you’ve defaulted on your mortgage or you’re in foreclosure, is bankruptcy an option you should consider? Let’s talk about a few of the factors you should consider.

I’m in Mortgage Default – Should I Consider Bankruptcy?

If you’ve defaulted on your mortgage and you’ve considered bankruptcy, you’re doing the right thing in exploring all of your options. Take the next few weeks to gather all of the information you need so you can make an informed decision. That may include consulting with an experienced bankruptcy attorney.

After your mortgage is in default, it can enter foreclosure.

Can Bankruptcy Stop Foreclosure?

If you’re facing foreclosure, bankruptcy won’t magically make it go away. Think of bankruptcy more like a “time out” – an opportunity to figure things out and reorganize debt to make it more manageable.

Before you file for bankruptcy, you need to decide what your goal is – are you most interested in discharging your debt, or keeping your home? You might be able to do both. Let the answer to this question determine your next move.

If You Want to Discharge Your Mortgage Debts

If you’re in significant debt and relief from that debt is your top priority, you may want to consider Chapter 7 bankruptcy. 

Sometimes it is just best to let the home go and start fresh.  If you’re in foreclosure, filing Chapter 7 will put an automatic stay on proceedings while the case is pending. This is temporary – typically about three or four months. As a result of your Chapter 7 bankruptcy, the court will discharge all of your dischargeable debt. Once the Chapter 7 is over, the foreclosure proceedings will resume.  This will give you time to move out in an orderly fashion.

If You Want to Keep Your Home

If you’re in foreclosure and want to keep your home, you will want to file for Chapter 13 bankruptcy. Filing for Chapter 13 bankruptcy will put an automatic stay on foreclosure proceedings. Filing Chapter 13 allows you to reorganize your debts into a more manageable payment plan, and as long as you adhere to the plan, you can keep your home.  Part of the reorganization payment will go to making up the missed home payments.

Can Bankruptcy Help with Mortgage Defaults?

As always, the details of every case are unique – we can’t provide one-size-fits-all answers. We’re here to provide you with some basic information that will help you decide whether to get in touch with a bankruptcy attorney.

If you’re in Oregon or Washington, the bankruptcy attorneys at OlsenDaines will be happy to discuss the details of your case with you. Feel free to send us an email, or call to schedule a free consultation in our office.

Or check out more of our bankruptcy FAQs here.