If you have mortgage debt and you are considering bankruptcy, you probably have some questions. One thing that many of our clients ask about is whether a mortgage is considered a secured or unsecured debt. It is a secured debt. Can this affect how your bankruptcy plays out? In some cases, it can. This is why it is not wise to go through this process on your own. The smart move is to let a Bergen County bankruptcy lawyer from our firm help you.
Why is a Mortgage Considered Secured Debt?
A mortgage is considered a secured debt because there is something backing it up. The deal is that you put down money on your house and you continue to make payments. When you renege on that deal by not making those payments, then there is something that the lender can do about it. They can take your house back from you. You do not really own your home until that mortgage is all paid off.
Compare this to something like credit card debt. The credit card company cannot just come by and take the stuff you bought if you stop making payments. They can ask you to pay off your debt or they can send your account to collections. This is why unsecured debt usually has a higher interest rate or can be harder to get approval for. Lenders do not want to be stuck with a debtor who won’t pay and no way to immediately fix matters.
Is a Second Mortgage or Home Equity Loan Secured or Unsecured Debt?
Sometimes people borrow against their home’s value, taking out a second mortgage or a home equity loan. These can often be good options for homeowners who need money for education expenses, home repairs, or other big bills because they are considered secured debt, just like a mortgage. This means that the interest rate would be lower than the rate on unsecured debt, like a personal loan or a credit card.
Does Bankruptcy Wipe Out My Mortgage Payments?
When you have a mortgage and decide to declare bankruptcy, there are a few options available to you. If you want to keep your home, you must be up to date with your payments when you file for Chapter 7 bankruptcy. This type of bankruptcy will technically clear you of your mortgage obligation, but the lender will be able to foreclose and you will lose your home. So you can try to keep your home or just walk away completely.
In Chapter 13 bankruptcy, you can make payments towards your mortgage as a part of your plan to repay creditors. Your debt repayment plan could make it easier to make your mortgage payments and give you the chance to catch up on late payments, a necessity if you want to keep your home. Because a mortgage is a secured debt, you cannot stop paying your bill and keep your house. It’s one or the other.
Schedule Your Consultation
So if you are considering bankruptcy, contact the Law Office of Boyd & Squitieri. Whether you have a mortgage or not, we can answer your questions and guide you through this process so that you can be ready to rebuild your finances on the other side.