How Bankruptcy Affects Mortgages in Tennessee

When individuals in Tennessee face financial difficulties, one of the significant concerns is how declaring bankruptcy will impact their mortgage. Understanding this relationship is crucial for homeowners considering bankruptcy as an option to address overwhelming debt.

In Tennessee, there are two primary types of bankruptcy that individuals can file: Chapter 7 and Chapter 13. Each affects mortgages differently, and knowing these differences can help homeowners make informed decisions.

Chapter 7 Bankruptcy and Mortgages

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts. However, it does not remove a mortgage lien from a property. In Tennessee, if a homeowner files for Chapter 7, they may still retain the home as long as they remain current on their mortgage payments.

It’s important to note that while Chapter 7 can discharge unsecured debt, like credit cards and personal loans, it doesn't eliminate the obligation to pay the mortgage. If the homeowner falls behind on mortgage payments, the lender can still initiate foreclosure proceedings, regardless of the bankruptcy status.

Chapter 13 Bankruptcy and Mortgages

Chapter 13 bankruptcy functions differently, as it allows individuals to reorganize their debts and create a repayment plan over a period of three to five years. One of the most significant advantages of Chapter 13 is its ability to help homeowners catch up on missed mortgage payments.

In Tennessee, filing for Chapter 13 bankruptcy can halt foreclosure proceedings, giving homeowners a chance to renegotiate the terms of their mortgage and resume regular payments. The homeowner can include overdue mortgage payments in their repayment plan, which can be beneficial for those looking to save their homes while addressing their financial obligations.

Impact on Credit Score and Future Mortgage Opportunities

Both types of bankruptcy will significantly impact an individual's credit score. A Chapter 7 bankruptcy can remain on a credit report for up to 10 years, while Chapter 13 lasts for seven years. This can make securing new loans or credit challenging in the future, including mortgages.

However, homeowners should be aware that it is still possible to obtain a mortgage after bankruptcy. Lenders typically require a waiting period after bankruptcy discharge. For a Chapter 7 bankruptcy, this waiting period is generally four years, while Chapter 13 may allow for refinancing as soon as one year after filing, provided the debtor has made all payments on time.

Contacting a Bankruptcy Attorney

Given the complexities surrounding bankruptcy and mortgage issues, it’s advisable for Tennessee homeowners to consult with a qualified bankruptcy attorney. An attorney can provide valuable insights about the process and help navigate the legal landscape, ensuring that homeowners make the best decisions based on their unique circumstances.

In conclusion, while bankruptcy can profoundly affect mortgages in Tennessee, understanding the differences between Chapter 7 and Chapter 13, as well as their implications, is essential for homeowners. With the right guidance, individuals can work towards regaining their financial stability without losing their homes.