As more people begin to acknowledge bankruptcy as a means of regaining positive financial footing, more are starting to embrace the option. However, it is important that people understand the different aspects of this choice and how it will affect their specific situation.

Particularly for homeowners, it is vital to know a few key things about the bankruptcy process. In fact, bankruptcy can affect a mortgage in a few specific ways.

Alleviate the burden

Depending upon the structuring of the bankruptcy, it may allow the debtor to walk away from the mortgage, along with other debts. In cases where the property is severely upside down or losing value, this may be beneficial. On the other hand, for those who want to keep their home, bankruptcy may allow them to gain more time to make payments.


The way in which bankruptcy will affect your mortgage greatly depends upon whether you select  Chapter 7 or Chapter 13 bankruptcy. This is due to the structure of the bankruptcy types themselves. Through Chapter 13 bankruptcy, debtors usually still owe certain debts, but the bankruptcy court restructures payments so the debtor is able to handle them financially. On the other hand, Chapter 7 bankruptcy usually discharges the party’s debts. While in some cases the court may allow the debtor to keep a home, sometimes the court may find it more feasible to sell the home and pay the debtors with the funds.

Open negotiation

In the case of Chapter 13 bankruptcy, in particular, a debtor has a chance to possibly negotiate with the mortgage lender. In doing so, the two parties can work together to come to manageable mortgage terms for the debtor.

Along with a mortgage, bankruptcy can have an effect on several other major life aspects. Take some time to consider how a bankruptcy will affect your life so you can make the best choice for your situation.