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We Recently Filed Chapter 7 Bankruptcy and Now We Want to Let Our Home Go Back to the Bank. – Sheila

“Dear Steve,

We recently filed Chapter 7 and waiting for discharge. Our mortgage payments are up to date but we did not reaffirm. Car payment reaffirmed so credit reporting will be good on that end. Since our plan is to move within the next two years, our credit counselor has advised us to find an affordable apartment now. We would save about $1,000.00 a month by doing so. We are not underwater on the house but very close. If we put the home up for sale it would barely pay the real estate commission. We have been advised to put it up for sale and if it sells OK. But was advised to stop making the payments so we could save for an apartment. It would probably be around 5 months before the bank would take the house back or it sells. This would give us the opportunity to save about $10,000. We already know where we would like to live and know we could get an affordable apartment to rent.


Dear Sheila,

I’m sorry to say it sounds like you’ve done this ass backwards. If you were going to give up the house then you should have considered doing that before you filed for bankruptcy and included the mortgage in your bankruptcy to discharge your liability for it. If you filed bankruptcy and then are going to have this huge delinquent debt hanging over your head it ruins your fresh start.

It also leaves you exposed to a huge potential deficiency debt the lender can come after you for if you simply let the house go now. Of course that depends on what state you live in and if this is your primary house.

Did you discuss this approach with your bankruptcy attorney? Who is this credit counselor giving you this advice?

At this point it seems like the better option is to try to reach a short sale arrangement with your lender and sell the house for what you can get out of it. The odds are pretty good you’ve got a realtor in your area that specializes ion short sales.

Pick up the phone right now and call your bankruptcy attorney. This is a mess for sure.

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


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About the author

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.


  • I am in need of advice. I filed for individual Chapter 7 bankruptcy and my husband didn’t file at all. I am not on our mortgage loan, but the bank is saying that because I used our mailing address which our house address they had to include the property in the bankruptcy. So now to make payments my husband has to call a bankruptcy line that the bank has to make a payment over the phone or  mail in a payment. We don’t get statements anymore on the account. Why is this possible? I used a bankruptcy filing company to help me file Chapter 7, I did not have money to pay an attorney to process my file. I did not know that doing this would affect my husband’s credit! Please advise me on what we would need to do if there is anything to correct this situation. We have always been current on our mortgage and don’t want to loose our house. Thank you, Alicia

  • Steve gave me wrong advice. He let me to believe I am personally responsible for my mortgage after filing Chapter 7 and NOT REAFFIRMing. My attorney said I am not personally responsible since I did not reaffirm the mortgage and I can walk away any time I want to.

    • OK, got it. You included the mortgage in the chapter 7 bankruptcy with the intention of abandoning the house. From your question it read to me as if it was your intention to keep the house when you filed and had since changed your mind since you wanted to now sell it.

      From my point of view it would have made more sense to allow the lender to forclose on the house prior to filing bankruptcy to make a clean break.

      Since you included the mortgage and discharged it then you are left with a deed to the property with a huge lien against it. Your personally liability for the mortgage was discharged but you won’t be able to sell the property without clearing the lien. Which is in essence the same as paying off the mortgage.

      If the mortgage was included in the bankruptcy and discharged there is no sense in making more payments on a note you are no longer liable for. But since the mortgage company did not foreclose and take the house back you will still be responsible for property taxes, insurance, liability, etc on the property as long as it remains in your name.

      Here is a previous question that is similar to yours.


      As the second article states, the act of continuing to make mortgage payments on a discharged mortgage MAY be reaffirmed by action. “Although the debt may not have been formally reaffirmed in the bankruptcy, there may be some argument that the loan was reaffirmed by acts of the parties. If you are in this situation and want to continue in possession of your home, I recommend contacting an attorney to discuss any remaining options you may have.”

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