How Bankruptcy Affects Your Mortgage in Georgia

Bankruptcy can significantly impact your financial landscape, particularly if you own a home. In Georgia, understanding how bankruptcy affects your mortgage is crucial for homeowners considering this option.

When you file for bankruptcy in Georgia, two primary types can affect your mortgage: Chapter 7 and Chapter 13. Each has different implications for your home.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows debtors to discharge unsecured debts. This means that many of your debts can be wiped away, but your assets may also be at risk. In Georgia, your home is considered an exempt asset up to a certain value.

Georgia allows homeowners to claim a homestead exemption, which enables you to keep your home as long as its value does not exceed $35,000 for individuals or $70,000 for married couples filing jointly. If your home's equity is below this threshold, you likely can keep it. If it exceeds this amount, however, the bankruptcy trustee may sell it to pay off creditors.

Impact on Mortgage Payments

While Chapter 7 can temporarily halt foreclosure proceedings through an automatic stay, it does not eliminate your mortgage debt. You are still responsible for ongoing payments. If you fall behind on your mortgage during or after bankruptcy, lenders may proceed with foreclosure. Therefore, it is essential to keep up with your mortgage payments if you wish to retain your home.

Chapter 13 Bankruptcy

On the other hand, Chapter 13 bankruptcy is a reorganization plan that allows you to keep your property while repaying your debts over a period of three to five years. This option is particularly beneficial for homeowners struggling to catch up on missed mortgage payments.

Under Chapter 13, you can include your past-due mortgage payments in your repayment plan. This means that you can avoid foreclosure by making regular payments as per the agreed-upon plan while also continuing to make your current mortgage payments. Successfully completing the plan lets you retain your home and move forward debt-free.

Credit Impact

Filing for bankruptcy will negatively affect your credit score, regardless of the type you choose. A Chapter 7 bankruptcy can remain on your credit report for up to ten years, while Chapter 13 remains for seven years. This can make obtaining future loans or refinances more challenging, though it is worth noting that many people find relief from debt stress by filing for bankruptcy.

Considering Your Options

Before making any decisions, consult with a bankruptcy attorney to discuss your specific situation and understand how Georgia's laws apply to you. They can help you navigate the complexities of bankruptcy, assess your eligibility, and determine the best course of action regarding your mortgage.

In conclusion, while bankruptcy can provide relief from debts, it is essential to understand its implications on your mortgage. Whether you opt for Chapter 7 or Chapter 13, knowing your rights and responsibilities in Georgia is vital for protecting your home.