In Chapter 7 the mortgage remains against the property. If you don’t pay on the mortgage the bank can and will bring a foreclosure action against your home.
The answer to this question is as follows: ‘liens pass through bankruptcy unless acted upon’ and there’s nothing in the bankruptcy code which allows you to attack a mortgage in Chapter 7 when it is secured.
If you think of it for a moment, if anyone could file a Chapter 7 and not continue making their mortgage payment and keep their home, no one could get into the office of a bankruptcy attorney because the lines would go for miles.
Further, the banking lobby would be in the emergency section of the hospital having burst a blood vessel to the heart.
Today now under the Bush Bankruptcy Code, there are complicated issues regarding ‘Reaffirming on a Debt’. Essentially, the personal obligation for the promissory note which you signed at your home closing is discharged in bankruptcy.
This liability is called ‘in personam’ or personal liability but the mortgage is considered an ‘in rem’ liability or ‘in the thing’ liability and a Chapter 7 bankruptcy does not affect this liability. ‘Liens pass through bankruptcy’ unless acted upon is the rule and a mortgage against a property is a lien or an ‘in rem’ liability.
Today before you can file a Chapter7 bankruptcy petition, you have to check that your income is not above the medium state income or if you are above the state medium income, do you still qualify for a Chapter 7 discharge of your debts.
If you don’t qualify for a Chapter 7 bankruptcy, then you will have to consider either Chapter 13 or debt negotiation.