If I File Bankruptcy In Michigan, What Happens To My House?

The first question is:  What do you want to happen to your house in bankruptcy?

What do you do about mortgage payments?

There is nothing automatic; you are not required to keep or leave your house in Chapter 7 or Chapter 13 bankruptcy.

Let’s start with Chapter 7 bankruptcy.

Assuming you have no equity in the house, that is, that you owe more on the mortgage than the house is worth, or, the equity is not more than you can exempt, just keep making the mortgage payments and pay the taxes and insurance.  You do not have to reaffirm a mortgage; unless they are giving you a better deal, there is no reason to do so.

In Chapter 7 bankruptcy, you get a discharge of your personal liability on your debts.  In effect, this takes your name off the mortgage note you signed, to pay back the money you borrowed against the house.

But the mortgage survives as a lien on your home; they can still foreclose if you do not pay.

It gets tricky if you have a second mortgage, because your house is probably worth less than what you owe on the first mortgage.  The second can only foreclose if it pays off the first, not likely.  And, once you get your bankruptcy discharge, they cannot sue you.

So you are probably better off to stop paying on a second, even if you want to keep your house.

If you want to give up the house, stop paying and hope the mortgage company forecloses or accepts a deed in lieu of foreclosure from you.

More on that in other posts.

Chapter 13

Now, in Chapter 13 bankruptcy, we can strip off, get rid of, that second mortgage lien.

So that, if you finish your Chapter 13 bankruptcy plan payments, not only do you not owe any more money, you only have the first mortgage as a lien on your house.

Many of my clients can scrape up a Chapter 13 payment once they stop paying the second mortgage, which is what happens.  That mortgage debt just gets thrown in with the rest of the unsecured creditors, like credit cards.

You do not have to keep your house in Chapter 13, you can give it up.

If you are behind on the first mortgage, a Chapter 13 bankruptcy gives you time to catch up on the payments.

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9 Responses to If I File Bankruptcy In Michigan, What Happens To My House?

  1. I know some people who have gone through bankruptcy and kept their house, car, and very often even came out with a higher credit score. Bottom line is, get a good attorney, do the right thing. There should be nothing to fear about going through the process.

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