When filing for bankruptcy and owning a home, it is important for a debtor to understand they will still have an obligation to the mortgage lender. With Chapter 7 bankruptcies the obligation is fairly obvious, the debtor will continue to make the normal monthly mortgage payment to the lender, but in a Chapter 13 bankruptcy, the debtor’s obligation may be less obvious.
If you are in a Chapter 13 bankruptcy, the expectation is the debtor will remain current on any mortgages they have on the home. According to the bankruptcy code, specifically Federal Bankruptcy Rule 3002.1, debtors must be timely notified of any fee adjustments, and failure to comply can result in penalties. If the debtor does not remain current on the mortgage payment the mortgage lender can motion the court to lift the stay so the lender can proceed with collections measures, which usually means initiating a foreclosure proceedings..

     The consensus is filing a Chapter 7 Bankruptcy is better than filing a Chapter 13 Bankruptcy. Why? I know this is ironic but Chapter 7 Bankruptcy looks better for your credit profile than Chapter 13 bankruptcy. Why? Because in Chapter 7 Bankruptcy, you get a discharge in 4 months whereas in Chapter 13 Bankruptcy you are in a repayment plan for 3-5 years before you get a discharge. This is why most of our clients prefer to file Chapter 7 Bankruptcy versus Chapter 13.

Filing for chapter 7 bankruptcy is a great option for many Minnesotans who are struggling to manage their debts.  People who earn less than the median income, based on their household size, are permitted to file a chapter 7 bankruptcy case. The beauty of a chapter 7 case is that the debtor (what you call a person who files for bankruptcy) is not required to make payments to their creditors like they do in a chapter 13 repayment plan. The catch is that in some case, the debtor may have to turn over certain property for the trustee to liquidate (sell to convert to cash) in order to pay their creditors.