When an Ohio homeowner files bankruptcy, the mortgage lender or holder will be prohibited, along with other creditors, with engaging in any further collection activity during the automatic stay issued upon the petition's filing. Debtors who are delinquent in their mortgages should be careful in choosing the bankruptcy chapter under which they will file.
A Chapter 7 bankruptcy will discharge the filer's unsecured debts following a liquidation of non-exempt assets. Chapter 7 will not discharge a secured debt such as a mortgage, however. Thus, following the discharge of unsecured debts, the mortgage company may then proceed against the homeowner through foreclosure.
Chapter 13 bankruptcy can be a better option for people who wish to save their homes. Under Chapter 13, the debtor will reorganize obligations and repay delinquencies over a three to five year repayment plan established by the trustee. The plan allows the debtor more time to catch up on the mortgage delinquency over the life of the plan. If the debtor's home has a second mortgage, it may be converted by the trustee into an unsecured debt depending upon the amount of equity, meaning the remaining balance will be discharged at the end of the repayment plan.
People who are considering bankruptcy should carefully think about the chapter that will work best for them. If saving a home from foreclosure is important, Chapter 13 may be the better option for the debtor. Those who are considering bankruptcy may want to discuss all of their options with their bankruptcy attorney who can provide guidance regarding the type of petition that is most appropriate for the situation, as well as an exploration of other forms of debt relief that may be available. Chapter 13 has strict eligibility requirements that the attorney can describe.
Source: sfgate.com, "What Do Mortgage Companies Do With Chapter 13 Bankruptcy?", M.C. Postins, accessed on Jan. 10, 2015