Yes, bankruptcy can help lower your mortgage payments in certain circumstances, primarily through a Chapter 13 repayment plan or by eliminating other debts to improve affordability. However, it’s critical to understand that bankruptcy will not automatically reduce your mortgage terms; instead, it creates opportunities to restructure debts, halt foreclosures, and negotiate terms depending on your financial circumstances. If you are struggling to pay your mortgage and deal with other financial obligations in Montgomery County, filing for bankruptcy might be your best option. Filing is a big decision, though, so it’s important to go into this process informed. A Montgomery County Chapter 13 bankruptcy lawyer from our firm can help with that.
Can Bankruptcy Actually Lower Mortgage Payments in Pennsylvania?
Bankruptcy does not directly affect your mortgage interest rates or principal balance; however, it can make your payments more manageable through restructuring and debt relief.
How Bankruptcy Can Lower Mortgage Pressure
- Eliminates unsecured debts, ultimately freeing up income
- Halts foreclosures through the automatic stay
- Allows for the repayment of missed mortgage payments during Chapter 13
- Creates leverage to pursue loan modification with lenders
- May allow for lien stripping in certain circumstances
It’s important to understand that bankruptcy is a federal process, meaning these rules will apply to filings throughout the United States and Pennsylvania, including for those in Montgomery County.
Do I Have to File Chapter 13 Bankruptcy to Lower Mortgage Payments?
Chapter 13 bankruptcy is the best way to address your mortgage payments and potentially get them lowered. This type of bankruptcy allows you to restructure your debts and make a manageable payment plan.
When you file for Chapter 13 bankruptcy, an automatic stay is issued. This prevents your mortgage lender from pursuing you for payments. It also stops them from starting or continuing a foreclosure. This gives you the chance to talk to your lender about the terms of your mortgage.
Through this process, you may be eligible to catch up on any missed mortgage payments during your three-to-five-year repayment plan, while retaining your property.
What You Can Do Under Chapter 13
- Spread overdue mortgage payments over the course of your repayment plan
- Stop foreclosure proceedings under the automatic stay
- Keep your home while reorganizing your debt payments
- Establish a structured, court-approved repayment plan
- Retain ownership while stabilizing finances
What Happens to My Mortgage During Chapter 7?
Chapter 7 bankruptcy is fundamentally different from Chapter 13, as it does not provide a direct way to restructure mortgage payments.
When you enter Chapter 7 bankruptcy in Montgomery County or anywhere in Pennsylvania, you liquidate assets to pay off your debts. If you want to keep your home in this process, you have to make all late payments that you owe and agree to pay on time going forward
If you cannot maintain payments, you can make the choice to surrender your home to eliminate your mortgage obligation.
Chapter 7 Mortgage Outcomes
- You must remain current on your mortgage payments to keep your Montgomery County home
- Missed payments are not eligible for restructuring under Chapter 13
- You may surrender your home to eliminate your mortgage liability
- Other discharged debts may free up income for mortgage payments
- There is no direct mechanism to lower your mortgage payments
What If I Want to Stop Making Mortgage Payments Entirely?
If you don’t want to worry about making mortgage payments at all, there is another option.. If you do not want to keep your home, you can submit a petition saying so. Then you no longer have a mortgage payment to worry about. This option is generally referred to as surrendering property.
What Happens When You Surrender Your Home in Pennsylvania
- You are no longer legally responsible for future mortgage payments
- The lender will assume possession of the property
- You will lose ownership of the home
- Remaining mortgage debt may be discharged
- This can ultimately provide a full financial reset if the home is no longer affordable
What Is Lien Stripping?
Lien stripping is one part of Chapter 13 bankruptcy that you can possibly take advantage of when you file.
When you owe money to a creditor, they can place a lien on your property that prevents you from selling it without paying them back.
If you have a second or third mortgage taken out on your home, it can be a major financial burden. In some situations, Chapter 13 bankruptcy and lien stripping can transform this debt from a secured debt to an unsecured one, meaning that you only have to pay part of this debt as a part of your overall payment plan.
When Lien Stripping Is Applicable
- Your home is worth less than your primary mortgage balance
- Your second or third mortgage is “underwater”
- Your secondary lien becomes an unsecured debt
Schedule Your Consultation With Our Montgomery County Bankruptcy Attorneys
If you want to learn more about bankruptcy and how it could be the best way to lower your mortgage payments and get a fresh financial start, the team at Mudrick & Zucker, P.C. is ready to assist you. We can schedule a case consultation and tell you more about this process. Contact us today to get started.
