How Bankruptcy Impacts Mortgages in Missouri

Bankruptcy can be a significant financial event that affects various aspects of an individual's financial portfolio, including mortgages. In Missouri, residents facing financial difficulties and considering bankruptcy must understand the implications it may have on their mortgage obligations.

When an individual files for bankruptcy in Missouri, they typically have two primary options: Chapter 7 and Chapter 13 bankruptcy. Each option can impact mortgages differently.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves selling off non-exempt assets to pay off creditors. For many homeowners, this option can lead to the loss of their homes if they cannot keep up with mortgage payments. If you are current on your mortgage and wish to retain your home, Chapter 7 bankruptcy may not be the best choice.

However, if foreclosure is imminent due to unpaid mortgage payments, bankruptcy can temporarily halt the process through an automatic stay, giving homeowners a chance to catch up on their payments or negotiate with their lender.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, allows individuals to create a repayment plan to pay off debts over a set period, usually three to five years. This option can be more beneficial for those looking to keep their home. Under Chapter 13, homeowners can catch up on missed mortgage payments over time, which stops foreclosure proceedings and allows them to maintain ownership of their property.

It is essential to note that filing for bankruptcy can temporarily affect an individual's credit score, which may influence future mortgage applications. However, many homeowners find that once their debts are managed under Chapter 13, their credit can improve as they make regular payments on their mortgage and start rebuilding their financial history.

Impact on Mortgage Rate and Approval

After a bankruptcy filing, obtaining a new mortgage can become challenging. Generally, lenders may view recent bankruptcies as a marker of high risk. In Missouri, the waiting period to qualify for a new mortgage after bankruptcy can vary. After Chapter 7 bankruptcy, many lenders require a minimum waiting period of four to seven years, while those who file Chapter 13 may be able to apply for a new mortgage within two years if they have made consistent payments on their repayment plan.

Home Equity and Bankruptcy

Another critical aspect to consider is home equity. In Missouri, any equity in the property is subject to be factored into bankruptcy proceedings. If your home has significant equity, it could affect the bankruptcy process, as bankruptcy trustees may seek to use that equity to satisfy creditor claims. However, Missouri offers a homestead exemption that may protect a certain amount of equity in your primary residence, allowing you to keep your home even during bankruptcy.

Conclusion

Understanding how bankruptcy impacts mortgages in Missouri is crucial for homeowners facing financial difficulties. Whether opting for Chapter 7 or Chapter 13 bankruptcy, it is advisable to consult with a bankruptcy attorney to navigate the complexities of the process and protect your home. With careful planning and strategic management, it is possible to safeguard your mortgage and rebuild your financial future post-bankruptcy.