Mortgage Debt and Bankruptcy

Bankruptcy Attorney Dayton, Oh

Recent reports suggest that one in three homes in America are considered “underwater”, or carrying mortgages greater than the value of the home itself. After a turbulent foreclosure crisis, many families have turned to bankruptcy for help fighting off an impending threat over missed mortgage payments.

Defending A Foreclosure

One of the best perks of the bankruptcy process is the automatic stay order, which halts all collection actions including foreclosure. In bankruptcy, a debtor is afforded the opportunity to develop a plan for managing their mortgage debt problems without the risk of losing their home. This is especially beneficial in nonjudicial foreclosure states that allow for a lender to foreclose on the loan in a matter of thirty to sixty days. Although Ohio is a judicial foreclosure state, requiring the lender to first file a suit with the court, homeowners are still left with only a few months to resolve their debt before losing a home.

Filing for bankruptcy in Ohio can help protect a home from foreclosure in two ways. A Chapter 7 filing can strip the liability for second mortgages, deficiency judgments, and penalties; thereby lowering the overall amount owed on the loan. However, payments must be resumed upon debt discharge in order to protect the home in the long run. In a Chapter 13 filing, the same portion of mortgage debts can be eliminated, but additional payment requirements can be spaced out over the period of up to five years. The timeline of the Chapter 13 filing may take longer, but it is often the more secured route for protecting an asset-backed loan like a mortgage.

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