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Can I Keep Discharge My Mortgage in Bankruptcy but Stay in My House? – Sage

“Dear Steve,

I purchased my house during the bubble. The morgage is severely upside down. I was able to secure a loan modification and it has made monthly payments manageable. I have some major debt problems and am looking at filing for bankruptcy.

I know that I would be allowed to keep my home if I reaffirm the loan. Because of the dimished value of the house (as well as a second mortgage), I do not wish to do this.

SO, the question is: If I file for bankruptcy and am up to date on the mortgage payments, will the bank let me stay in the house if I continue to pay? (I assume this would absolve me of any continued long-term financial responsibility for the house.)

Thanks for all you do, Steve:)

Sage”

Dear Sage,

Interesting question.

Let me see if I have this straight, what you want to do is include the mortgage in a Chapter 7 bankruptcy and discharge it but continue to live in the house by making the mortgage payments. Is that right?

I have talked to a local bankruptcy attorney about doing a Chapter 13 bankruptcy to stay in your house but put your other debts on a reduced payment plan?

Please post your responses and follow-up messages to me on this in the comments section below.

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Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

2 Comments

  • I wish to discharge all my debts and believe that I would qualify to do a Chapter 7. I do not want to reaffirm the upside down mortgage debt.

    Will the bank let me stay in the house if I keep paying? It didn’t seem likely to me, but I read online somewhere that you could. Doesn’t seem likely, huh?

    Sage

    • While I have heard of cases like this happening, either because the bank does not want the empty house back now or whatever, unless you get a written agreement with the bank you can be kicked out at anytime, and almost worse off, you will still be obligated to pay property taxes for a home you no longer own.

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